Progressives swooned over Elizabeth Warren’s recent statement that wealthy people may be violently expropriated:
There is nobody in this country who got rich on his own. Nobody. You built a factory out there? Good for you. But I want to be clear: you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did. Now look, you built a factory and it turned into something terrific, or a great idea? God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.
Every aspect of this quotation is a juvenile misconception. Economist Robert Murphy doesn’t let her get away with it:
To see just how absurd Warren’s view is, imagine a Soviet-era party official chastising workers who thought they had labored long enough in a Siberian work camp: “You ungrateful wretches! Don’t you realize that the bread your wives wait in line three hours for comes from the government? There is a social contract here, where we give you food and shelter, while you give us work and respect.”
Apart from the theoretical problems with Warren’s statement, there are the practical ones:
Besides the principled objections, we can also raise several practical, economic problems with Warren’s views. For one thing, a factory owner already does pay a lot for use of the government roads and labor services of his employees. In contrast to other “public goods,” roads often have a much more dedicated payment stream, in the form of tolls and gasoline taxes. So the factory owner, who pays trucking companies to ship products around, is already paying a lot more to maintain the interstate highway system than is a lower-income person living in Manhattan with no car.
Regarding skilled workers, here too the factory owner already pays for it: we call these payments “wages” or “salaries.” If someone goes to the University of California at Berkeley and becomes an excellent engineer, who is able to deliver an extra $150,000 in revenues to a factory owner, then with competitive labor markets we’d expect the engineer to earn close to $150,000.
This analysis doesn’t mean that business owners are indifferent to educational quality, but it does show that things aren’t quite as obvious as Warren makes them out to be. If students at state schools are receiving subsidized education that raises their productivity, the primary beneficiaries are the students themselves. So Warren should be asking them to cough up more money, not the employers who have to pay full freight for their services.
And here is Murray Rothbard on roughly the same principle (from Man, Economy and State, the special edition featuring Power and Market, as Rothbard’s treatise was originally intended to be published):
Some writers have contended that people benefit from government in proportion to their income; others, that they benefit in increased proportion to their income, thus justifying a progressive income tax. Yet this entire application of the benefit theory is nonsensical. How do the rich reap a greater benefit proportionately, or even more than proportionately, from government than the poor? They could do so only if the government were responsible for these riches by a grant of special privilege, such as a subsidy, a monopoly grant, etc. Otherwise, how do the rich benefit? From “welfare” and other redistributive expenditures, which take from the rich and give to the bureaucrats and the poor? Certainly not. From police protection? But it is precisely the rich who could more afford to pay for their own protection and who therefore derive less benefit from it than the poor. The benefit theory holds that the rich benefit more from protection because their property is more valuable; but the cost of protection may have little relation to the value of the property. Since it costs less to police a bank vault containing $100 million than to guard 100 acres of land worth $10 per acre, the poor landowner receives a far greater benefit from the State’s protection than the rich owner of personalty. Neither would it be relevant to say that A earns more money than B because A receives a greater benefit from “society” and should therefore pay more in taxes. In the first place, everyone participates in society. The fact that A earns more than B means precisely that A’s services are individually worth more to his fellows. Therefore, since A and B benefit similarly from society’s existence, the reverse argument is far more accurate: that the differential between them is due to A’s individual superiority in productivity, and not at all to “society.” Secondly, society is not at all the State, and the State’s possible claim must be independently validated.
Hence, neither proportionate nor progressive income taxation can be sustained on benefit principles. In fact, the reverse is true. If everyone were to pay in accordance with benefit received, it is clear that (a) the recipients of “welfare” benefits would bear the full costs of these benefits: the poor would have to pay for their own doles (including, of course, the extra cost of paying the bureaucracy for making the transfers); (b) the buyers of any government service would be the only payers, so that government services could be financed out of a general tax fund; and (c) for police protection, a rich man would pay less than a poor man, and less in absolute amounts. Furthermore, landowners would pay more than owners of intangible property, and the weak and infirm, who clearly benefit more from police protection than the strong, would have to pay higher taxes than the latter.
It becomes immediately clear why the benefit principle has been practically abandoned in recent years. For it is evident that if (a) welfare recipients and (b) receivers of other special privilege, such as monopoly grants, were to pay according to the benefit received, there would not be much point in either form of government expenditure. And if each were to pay an amount equal to the benefit he received rather than simply proportionately (and he would have to do so because there would be nowhere else for the State to turn for funds), then the recipient of the subsidy would not only earn nothing, but would have to pay the bureaucracy for the cost of handling and transfer. The establishment of the benefit principle would therefore result in a laissez-faire system, with government strictly limited to supplying defense service. And the taxation for this defense service would be levied more on the poor and the infirm than on the strong and the rich.
(N.b.: I am not addressing the entirely separate question of whether some of the present-day rich may have acquired their riches in immoral ways, since this is not Warren’s point; she is speaking of business firms that have not harmed anyone.)