farber justice and taxation

8/3/2019 Farber Justice and Taxation

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JUSTICE AND TAXATION

JAN FRBER*

Redistribution by progressive taxation has come to be almost universally accepted as just.

Yet it would be disingenuous to avoid discussing this issue .(F.A. Hayek, The Constitution of Liberty, London: Routledge 2009, p. 266.)

Introduction

The main question we are about to answer in this essay is: Is there any form of justtaxation? To be more accurate, we will try to answer it. Whether we will find an answer is yetanother question. But lets stick with our original question. In order to give an answer to anyquestion, it is of utmost importance to understand the question in the first place. We shall startby analysing the very words which form this question.

We dont want to get stuck in a metaphysical speculation about the meaning of is.Therefore we will simply take Is there in a usual meaning: Can we see, or imaginesomething? We will apply the same approach to form, and say that it means the waysomething is presentedto us (and/or the others). The cornerstones of our understanding of thisquestion are the words justand taxation, as they bear the meaning of whole sentence. Weshall therefore concentrate on these.

Justice

Let us first examine meaning of the wordjust. There are many meanings attributed to thetermjusticeor to say it otherwise; there are many ways in which the word can be (and hasbeen) understood. Many great men1 have dealt with the topic; Plato in his Republic, Aristotlein his Nicomachean Ethics, Adam Smith famously in Theory of Moral Sentiments, or John

Stuart Mill in his Utilitarianism. Lately the topic was greatly elaborated upon by F.A. Hayekin his Law, Legislation and Liberty.All these men have developed many different notions of justice.2 All of whose have one

common feature, if they are about to be meaningful; they are concerned with humaninteractions, because justice is the characteristic of human action, not of facts of natureunrelated to it. We will stress two of the notions of justice, here. The first is distributive

justice, and the other one is commutative justice. These are the two fundamental principles ofjustice known since Aristotle, and thats one of the reasons why it wasnt an arbitrary choiceit was a profound choice based on the fundamental distinction of these principles.

Distributive justice

First of them distributive justice evolved from the need to divide benefits of thecollective action by a small (maybe more accurately coherent) group of people. Typicalillustration of such situation is a hunt on mammoth. It is an action where group (hunters, tribe)of people has a common goal (to kill mammoth). They all contribute to this goal, but theircontributions are not equal (one cuts it in leg, another cuts its throat, etc.). If they succeed andaccomplish their goal, another problem arises: How to distribute the prey? Thats why theresulting principle of this process is called principle of distributive justice. There are many

* Author is a student at Faculty of Economics and Public Administration at University of Economics,Prague. He can be contacted at [email protected].

1 We stall name here just the most important ones, but there were of course much more many great authors

elaborating upon the notion of justice. For more comprehensive list see (Smith, 1982, p. 272 and below) and (F.A. Hayek, 1994, chap. VIII, IX).

2 For example J.S. Mill has developed 5 notions of justice in (Mill, 1833, pp. 287-302).


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possibilities how to divide prey. And no doubt many of them had to be tried. The easiest onemight be that the leader of the group sets the slices himselfin a small group this would beno problem. But when doing so, he must follow (either consciously, or implicitly) one law.This law is an apriori law3 of human mind.4 This is so, because he is permanently underobservation by other members of group.

This law has a form of generally valid equation:

, which can be filled with

various contents, and whereR stands for Rewards and Cstands for Contributions ofi andjthe respective members of group. This equation expresses the main characteristic ofdistributive justiceproportionality. Each members reward should be in same proportion toany others reward, as are their respective contributions to the collective goal. As we havesaid before, this quality is embedded in a very nature of all men. It has the character of agestalt5 lawit is present at our mind even prior to intellect. In other words, we may say thatthis is the natural notion people attribute to the term justice. If a distribution ought to be just,it shall follow the principle of proportionality of rewards and contributions, i.e. the principleof distributive justice.

So far, so good, we are driven to say. After all, Karl Marx himself wanted6

incommunism everyone to work according to his skills and to receive according to his needs.But this is the step, which summarizes and makes explicit the difficulty of this approach to

justice. As we have seen, the principle of distributive justice can and ought to be applied forsituations of collective action, only. It is this very notion of common goal which makes iteven imaginable to apply the principle of distributive justice. So far all utopian proposals(Marxs was taken as example above) are at least to this extend consistent. They really dopresuppose existence of such common goal of society. What they forget about is that allsocieties they are talking about be it nation or even mankind as a whole do not fit intocategory of a small society. And mainly because of their size (but not only because of this) isit extremely implausible that their presumption of a common goal can be achieved. The result

of which is simple: we can no longer use only the principle of distributive justice to determinejust actions.

Commutative justice

We have to come with new principle. And people did come with one, indeed. It is theprinciple of commutative justice. Its main advantage is that it does not presume existence of acommon goal among people. Thats why it can and ought to be applied in situations of largesocieties, where people with various (even conflicting) goals interact.

Main concept commutative justice is based upon is equality. Such old norms as an eyefor an eye,7 are based on this concept and therefore fall within the principle of commutative

justice. The main area of situations where this principle can be used is the sphere of

impersonal interactions of individuals with conflicting goals, e.g. markets. Markets are thePromised Land for principle of commutative justice, especially as we move from barter to

3 Similarly to the law of diminishing marginal utility, as most famously presented by Gossen, for moredetails see (von Mises, 2003, pp. 162-4).

4 Children and even higher collectively living animals have this apriori norm embedded.5It has a form of determining the fourth component if we know remaining three components; nature of this

gestalt law was illustrated by Wolfgang Khlers experiment with chimpanzee Sultan, see (Mangal, 2007, pp.212-214).

6 Famous motto, can be found in (Marx, 2008).7 It is a rather special example of application of this principle. It is based on assumption that all people in a

society have similar marginal utility of the respective body parts. Therefore if you caused a loss of an eye it wasjust for victim of your action to have a right to cut your eye, too. It was because of the equal MU you both lostthat such punishment was found just.


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markets using common media of exchange money. This principle can most clearly be seenhere. Lets illustrate it on an example:

Say a cook wants to buy a cucumber, he values it for 5 $. This means he will buy it for 5or less. Then there is a merchant who sells cucumbers for sake of an argument let ussuppose that he doesnt announce the price in advance to make the example more interest ing.

He also values his cucumber, say 2 $.8

When they encounter each other they can easily makean exchange. What exactly will be the price (ratio of $s for cucumbers) we cant say itdepends on their bargaining positions. Lets say theyll make an exchange at price 3$ for acucumber. This means that both of them got what they wanted, for both of them thetransaction was even bargaincook got cucumber for less than he valued it and merchant gotmore than he demanded for his cucumber. Where, might we ask, is the equality then? Theequality is in an act of exchange itself. This very act can be interpreted as cook and merchantsaying: 3 $ equals a cucumber.

Well, we have seen now, that there is equality present in an act of exchange. But we stillhave not shown how equality can be justified as principle of commutative justice. In case ofdistributive justice we have found this principle is derived from an apriori (gestalt) law of our

mind. In case of commutative justice its principle can be depicted as an apriori law the lawof tautology; A=A. This means we have some foundations for this principle after all. But itstill is difficult to see where does the justice come from in this case. The difficulty is causedby absence of common groundwork of the situation. There is no common goal in situationswhere we apply this principle.9 The ground for justification must be seen somewhere else,then. We can see it, if we examine more closely the setting of whole situation. There are manyindividuals with conflicting goals. And still they manage to make mutual voluntarytransaction, which is expressed by equality of displayed valuations. Grounds for justificationof this principle must be seen here in the voluntariness and mutual acceptance of equalityexpressed in this transaction. We dont need do go to the detail of each individuals decisionformation. We dont have to ask why does cook value a cucumber for 5 $. Its enough for usto see him voluntarily expressing his preferences. On this ground we can say that all suchtransactions happened in accordance with justicecommutative justice.

Taxation

We now have in our disposal two notions of justice. In order to find out which one ofthem shall be applied for justifying taxation we have to examine the nature of taxation. Inparticular we need to find out whether the parties involved in taxation share some commongoal or whether they are distinct individuals with conflicting goals; to see whether we shouldapply principle of distributive or commutative justice, respectively.

We can start our enquiry on meaning of taxation with a definition ascribed by J.N.Keynes to great classics J.B. Say, James Mill and Victor de Laveleye:

Taxation is the means whereby the consumption of government is provided for.10

We must absolutely agree with such description of taxation. It gives us the idea of whattaxation is about. And we might shift our question to: Is there any form of just provision forgovernment consumption? We have to move one step forward in our search for common goal.This search inevitably leads to question on nature and justification of government. We may

8This can, but doesnt have to be the price for which he buys cucumbers from producer depends on

many other factors (e.g. institutional settings of the marketplace).9Thats why we apply it in the first place.10See (Keynes, 1891, p. 107), footnote 2.


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basically, take one of two opposing stances in answering the question what is government.These are either Hobbesian11 or libertarian.

Hobbess argument is that in the state of nature we are in permanent war of all againstall, and to survive, we need to give up some of our rights to higher authority, which thenprovides us with security. In this line of reasoning the government is justified since there is

the common goal of security provision. Then the situation is as follows: government and allits citizens have a common goal of security provision; therefore we ought to apply theprinciple of distributive justice. The situation is analogical to that of a tribe. There are tribemembers (citizens) and the leader (government), common goal is to kill a mammoth (ensuresecurity). If they succeed they will get their part of a prey (security) accordingly to how theycontributed to killing a mammoth (how much they payed on taxes). The important fact is thatall tribe members have the gestalt law in their heads. It means that if there is a deviation fromthe just situation they will find out.12 Conclusion of this argument then is that there is a justform of taxation, at least in theory; but its based on some strong assumptions: a) citizensshare a common goal which only government can provide, and b) citizens can check theprocess of tax raising and spending the revenue.

The other answer comes from libertarian stance. It basically says this: There are variousindividuals, with individual goals. Government is just another individual (or group thereof)who has a local monopoly on coercion and coercion is always unjustified since it violates theprinciple of voluntary exchange (interaction) and by this doesnt satisfy the principle ofcommutative justice. Therefore government is unjustified; therefore taxation as a means ofproviding for government consumption is also unjustified always. Quite interesting is thatlibertarian starts from the same situation as Hobbes did; he only looks at the situation in adifferent way. Libertarian sees that war of all against all is a bad thing, too. But he doesnt seea solution in establishing a higher authority to which its subjects should permanently give upsome of their rights. Most importantly he doesnt see this war as an initial situation ofmankind. His implicit assumption is that people are not that bad inside after all.13 And

therefore people are able to somehow voluntarily agree on not attacking each other andmaking an exchange instead. Then there is no need to establish any kind of higher authority,i.e. government. And then all interactions among individuals (who have conflicting goals) canbe justified on basis of principle of commutative justice. We might see that this is a strongassumption, too.

Conclusion

We have seen there is a possibility of justification of taxation. The problem is that it hasvery strong assumptions. Therefore it might be interesting to compare these assumptions tothe current situation in developed countries, to see how we stand. Todays countries areusually representative democracies. Their citizens express their opinions in elections and thusthey indirectly take part in exercising the state power through their representatives. Thesesystems are based on some variations of majority rule and separate essay might be devoted tothe question of justification of this rule.

But this is not that important for us; we are more concerned about existence of acommon goal all citizens share. This in our opinion is usually missing. It is obviouslyoutcome of historical development and fact that if some goal is to be shared by millions ofpeople, it must be some general and remote idea. Various nationalistic or racial conceptionsused to serve this purpose. But these are in conflict with higher idea of humanity; and are

11 This is a heavily reduced version of Hobbess theory as developed mainly in (Hobbes, 1909).12

This will have its consequences for the leader, but for us it is enough to see that the situation is unjustand that it is also recognized as such.

13Hobbess: homo homini lupus doesnt hold.


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unjustified on this level. Whatever is the reason, the fact is that todays societies rarely shareany ideas whose protection should be set as their common goal.

This is also connected to another problem (at least in this manner) of modern societies their complexity. There are so many people with so many individual goals that it is hardlyimaginable that they could unanimously agree on some common goal. This fact also

complicates fulfilment of the other Hobbesian assumption transparency of both parts of theequation of distributive justice.

We must therefore conclude that from the point of view of our theoretical analysis, thereis in fact no just taxation possible in todays world; at least if we stick to sound principles of

justice distributive and commutative. The fact, that these principles are really strict anddemanding may serve as a solace, here. If we take some of weaker notions of justice, wemight arrive at different answer. The vice of such approach is that it doesnt search for justice

but for some kind of justice.

References

Hayek, F. A. (1994).rvo zkonodrstv a svoboda nov vklad liberlnch princip

spravedlnosti a politick ekonomie (2 ed.). Praha: Academia.

Hayek, F. A. (1978). The constitution of liberty. University of Chicago Press.

Hobbes, T. (1909).Leviathan. Indianapolis: Liberty Fund Inc. Retrieved from

http://files.libertyfund.org/files/869/Hobbes_0161_EBk_v5.pdf

Keynes, J. N. (1891). The scope and method of political economy. Macmillan.

Mangal. (2007).Essentials of educational psychology. PHI Learning Pvt. Ltd.

Marx, K. (2008). Critique of the Gotha Program. Wildside Press LLC. Retrieved from

http://books.google.cz/books?id=t5hQUxwVprsC

Mill, J. S. (1833).Essays on ethics, religion and society (The Collected Works of John Stuart

Mill.). Indianapolis, Indiana: Liberty Fund Inc. Retrieved from

http://oll.libertyfund.org/title/241

von Mises, L. (2003).Epistemological problems of economics (3 ed.). Auburn AL: Ludwig

Von Mises Institute.

avlk, J. ()... ayek a teorie spontnnho du (1 ed.). Praha: Professional Pub.

Plato. (1892).Dialogues, vol. 3 - Republic, Timaeus, Critias. Indianapolis, Indiana: Liberty

Fund Inc. Retrieved from http://oll.libertyfund.org/title/767

Smith, A. (1982). The Theory of Moral Sentiments (Glasgow Edition of the Works and

Correspondence.). Indianapolis, Indiana: Liberty Fund Inc. Retrieved from

http://oll.libertyfund.org/title/192

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