Taxes, War, and the State are Freedom’s Biggest Enemies
Summary
Investment Theme: The podcast discusses the concept of the modern tax state, highlighting its ability to impose taxes freely and its evolution from historical systems of governance.
Historical Insights: Joseph Schumpeter's analysis of the tax state is explored, emphasizing its role in enabling state power through fiscal capacity, borrowing, and inflation.
Economic Theory: Schumpeter's idea of creative destruction is mentioned as a key aspect of capitalism, illustrating the dynamic and unpredictable nature of market economies.
Market Dynamics: The discussion touches on the transformation from medieval monarchies to centralized states, showcasing how fiscal and bureaucratic developments have shaped modern economic systems.
Political Economy: The podcast delves into the ideological shift during the Renaissance towards centralized power, contrasting it with earlier decentralized governance models.
Key Takeaways: Understanding the historical development of the tax state provides insights into current governmental strategies and potential pathways for decentralization and increased economic freedom.
Transcript
[Music] Welcome back to Radio Rothbard. I'm Ryan McMaken, executive editor at the Mises Institute. And this week, we're going to talk a little bit about the tax state. That is that's the sort of state we live under today. This is the sort of state that can freely tax anyone and anything it wants with minimal push back from any parties within the country where that state rules. Now, to join me to talk about that today and some of the history behind the the modern tax state, we have Joseph Cis Mullen. Now, Joseph's been on before uh and he's an instructor of history and political science and economics at Spring Harbor University in Michigan. And the reason I had him on to talk about this is just coincidentally uh we were writing on some similar topics for mises.org. So we've had some columns come out covering some similar territory and we both just happen to decide in recent months to read Joseph Schumpeder who has a I think a fairly influential lecture from 1918 uh called the crisis of the tax state and he goes into a whole history of the tax day where it comes from and what are the implications of its modern form. He's saying that in 1918, but things haven't really changed, improved, uh certainly haven't improved since then in terms of some of the issue issues he covers. So, we'll we'll talk about that a little bit now. So, Joseph, uh thank you for joining me today and thank you for writing topics on an article that interested me and which I happen to be writing on also so that we can do this right now. >> Um, >> thanks for having me. It's always a pleasure to join you guys. Well, why don't you just start off by telling us a little bit about Joseph Schumpeder? Now, people often get confused because Schumpeder was an Austrian economist. That is, he was an economist from Austria, but he wasn't an Austrian school economist. Uh, nevertheless, as you point out as which I've said and which Ralph Reiko has said, and of course you and I have talked about Reiko a bit, is that Shrimper has a lot of valuable insights. So tell us just a little bit about Schumpeder uh and and why we read him even though he's not an Austrian school guy. >> Of course. So Schumpeder as you said he is an Austrian and an economist. He's one of the great theorists of capitalism and entrepreneurship from the early 20th century. Really he starts writing his more mature works in the 20s and 30s, early 40s. The central idea that most people are familiar with with him is the idea of creative destruction. Uh that being the idea that uh you know capitalism is unpredictable. It destroys one thing in order to make another thing and that this is what makes market economy so dynamic. Um he wrote theoretical works as well on history and the development of the state. You referenced uh that I say the crisis of the tax state which was from 1918. uh he looked at the the fiscal and institutional evolution of the of the modern state which is something that Rothbart of course as well was very interested in and who wrote great works on that. Uh so for Schumpeder the state was not you know some abstract moral actor serving the you know quoteunquote public good but it was a concrete historical formation whose limits were defined only by its fiscal capacity that is by how much revenue it could raise through taxation borrowing and inflation and so while you're right he wasn't an Austrian in in this Austrian economist like a misus or a Rothbart you know he shared that fundamental skepticism towards state power and state expansion. and he understood that a state's ability to finance itself is what enables it uh to attempt whatever it wants to do. So it's that fiscal capacity that kind of becomes selfreinforcing especially during crises and wars which lead to that sort of permanent ratcheting up of power that people like Higs talk about and which is something that that I talk about in my own work as well. So, >> and I think just so that to help people classify Schumpeder in their minds as well, I think one of the things he's perhaps best known for among people who read this sort of thing is that he was a pessimist when it came to the idea of the liberal capitalist state, right? He thought it would fail, not for the reasons Mark said, but for other reasons. Can you tell us what those reasons were? >> Absolutely. And and uh capitalism, democracy, and socialism is right on the shelf behind me there. Um he believed that interestingly that that it was that it was a process essentially of decay that capitalism would breed comfort and success and would create an environment that was detrimental to the entrepreneurial spirit and in the same uh kind of vein that Dtoqueville had talked about with soft desperatism that this would lead to a wealthy society that could fund this very large state and that more and more of society's functions would be taken taken over by this bureaucratized state and that that is that is socialism. And from there it's just it's a gradual little step one after another down the road to socialism. And it's he believed that capitalism could not last. And he believed that socialism quote unquote uh that is state intervention in the economy could work that we would all be poorer and worse off and not as free. But he said look it's not going to be like such a horrible catastrophe that it won't work. um we're just going to be all way worse off and that capitalism will ultimately fail because uh it's very difficult once you have uh that wealth and especially once you have a state. I mean, I've had this I've had this talk with my students as well about like, well, why can't we have like a minimal stay and a night watchman's day? These nozzikian type ideas and it's like, guys, I I love you and I I like that book, too. And I like that idea. But you see, it's it's the fact that it exists and that it has the ability to act and that in a crisis, it's going to get that power and it's just a matter of time. It's really just a matter of time before that happens. So that was that was his theory of why capitalism would fail is that it would breed a society that was antithetical to it. you just published at the institute Hayek's essay uh book of essays uh and one of them is um the intellectuals and socialism where he talks about why socialism and Rothberg wrote about this as well and uh this is one of Schumpeder's themes that he plays on as well is that the intellectuals will turn against capitalism and embrace socialism and so he was very Prussian he was very unfortunately Prussian >> well uh I guess we could describe him then as part the um the pessimistic school of uh capitalists. Rothbart probably would represent the optimistic school. Uh I think he felt that the state would break down. Uh Rockwell as well probably thinks that the state will break down due to its own internal contradictions. But what is the time frame on that sort of thing? But yes, Schumped a very interesting author also wrote a history of intellectual thought has opinions about um for example Adam Smith and just the whole history of liberalism. I just remember it was I don't know if Shumpeder invented the idea but certainly one of the first places I encountered uh the the pathy phrase that uh what uh what Smith uh was right about was totally unoriginal and what and when he was original he was wrong. >> Quite right. >> So he was something of a skeptic about Smith which Rothbart was as well. So yeah, don't you can't put totally on Rothbard the the because Rothbard gets often u excoriated even by people who like Adam Smith and oh Rothbard went too hard on Smith. Um and just because Smith wasn't some full full hardcore anarcho capitalist type. The reality is that Schumper really disliked Smith too. Didn't want to give him much credit for anything at all. And so you can and that's just in some of his earlier works that are just very very interesting. So >> uh very Austrian school adjacent. Um and he he comes up here on mises.org every now and then and it certainly got mentioned uh gets mentioned by some of our own historians of political thought because of his uh important contributions to that. But let's look at his his view of the tax state. Now, we both were just perusing his thought on this issue about the idea of the tax state, which seems to be his rise of the tax state idea seems to just be similar to the rise of the state in general. That the modern state as we think of it is is somewhat I don't want to go out and say synonymous with the tax state. I think it's there's maybe some distinctions there, but it's pretty darn similar from what I can see. But but I don't know. Give me your view on when Schumpeder is talking about the tax state. What what's he talking about? >> Well, no, that I think you're exactly right. It it's not that we need to say they're interchangeable. I don't know that you need a strict definition of saying, well, here's where one ends and one begins because I I think it's very interesting when we look at the the transformation of medieval monarchy and the rise of the you know largem modern um fiscal military centralized bureaucratized absolutist state. So, and I think we're going to talk about that here later on so I won't go too into it now. The tax state as Shimper used it was it was for a modern state quote unquote. Its existence entirely depended on and was to a significant extent defined by its ability to extract resources from society through taxation. So earlier on in the medieval period rulers funded themselves from their private estates from feudal dues from tolls from other rents. Taxation was episodic, a very extraordinary measure, often justified by war or famine. Very oftentimes, it wasn't even paid in money. It was a service that was due. By contrast, the modern tax state makes taxation its normal and permanent mode of existence. It it no longer simply raises revenue to protect life or property, but it uses its fiscal apparatus as an instrument of social engineering ultimately is where that goes. And in Chuner's view, the tax day is the culmination of the process by which government becomes increasingly interventionist, redistributing wealth, manipulating economic outcomes, sustaining vast bureaucracies. And he thought that this transformation obviously carried immense dangers once the state masters borrowing and inflationary finance and taxing. There are basically no natural limits left and fiscal power becomes political power and that erodess economic and political freedom. So it all kinds of build kind of builds on itself. And it just so happens that I was kind of explaining rather recently in a lecture to my class that look it was it was all these different pressures that were happening originally. If I was a medieval king and I needed to have some war with one of my rivals, I needed to negotiate this with my vassals who were very powerful lords in their own right and who technically owed me vasselage, but I couldn't just command them to do so. I not not unless I wanted to provoke a rebellion probably. And so it was a very mutualistic give and take process. And they would bring their own forces with them, knights on horseback and stuff. And as that mode of warfare became increasingly irrelevant by the 13th early 14th century, the nobility loses that military role as infantry and long bowmen and crossbowmen and then later on uh gunpowder weapons come along. All of a sudden they have no military role. And so they start substituting that for payments to the king and money so that he can hire armies and provision and clothe them. And as warfare intensified, they then wanted the kings, they wanted to be able to extract more money out of the population that they controlled. And this is where the bureaucratic apparatus comes into play is that's what it was for. It was to extract wealth from the population. That's all it was for. Wasn't to like make their lives better or some kind of, you know, that's sort of the veneer that gets put on it later, but that that's really where it comes from. And one of the first times you and I talked um we talked about war made the state >> and that was that was true. It was war made the state. Um and then the state went and made more war. So >> sorry. >> I think that was Charles Till's uh quote on that too, right? I think he really pioneered that idea is that war made the state and state made war. >> Yeah. >> And because it works in both directions. Well, and and of in the last 10 days or so, I've written a couple of columns making some similar points, right? Is that you have the tax state, and I I wanted to add some additional definitions of the tax state because I think that a lot of times people just don't even realize how welldeveloped the tax state is in modern times. And then we can contrast that with other systems. So for example, right and the US is absolutely 100% a fully developed tax state, right? There is no >> it before 1913, you might have argued that it wasn't. But since the innovation of the income tax, absolutely in every way, the US government is a fully developed tax state because it fulfills all of the basic components of being a tax state. It can impose direct taxation on anybody and everybody all at once. It doesn't have to ask the permission of a local government or a state government or some intermediating group if it can apply taxes down all the way to the individual level within every region of the country. Right now, if this were something more of a medieval model, if the if the the central government wanted to impose a tax on a citizen of Tennessee, for example, they would have to go to the Tennessee government and say, "Well, you've got that person there produces a lot of wealth. Can you give me some of it?" So, they're having to go to an intermediating force and asking for uh for some resources indirectly. But that's not how the US government works. It imposes direct taxes. Also, there isn't any other entity within the central government or within the United States that can prevent the imposition of a tax. Right? If a m bare majority in Congress says we're raising taxes, nobody else can do anything to stop it. The the state governments cannot veto it. There is the state court certainly can't veto it. There's there's nothing in between where any other organization can say no, you can't just raise this tax at will. So that's the other major component of the tax state is it's just it's simply as as they please there they don't have to get anybody else's permission outside the central government. And then another major component is once the tax revenue is collected they can spend it on whatever they want. That's and I think that's a big distinction too with earlier time periods was if you were paying fees or imposts uh dues of some kind uh the you were mandated as the the one who collected the taxes the one who received the tax or in many case they weren't even really taxed they were fees because they were tied to a specific service you had to provide a service that was tied to the source of that tax. It was like, "Okay, can you provide me for this thing and I'm going to do XYZ with it there?" Nobody thought it was a good idea to let the central government collect taxes and then do whatever it wanted and spend them and however the central government saw fit. So we however live in a system where you got money rolling in from dozens of different sources and who decides how to spend it? Only the central government. They have total cart blanch about how to spend that money. So when you look at all of those components combined that I think defines the modern tax state and look looking back at some of the things that you just brought up right there were previous regime types that were not tax states th those were these earlier pre-state regimes often medieval monarchies. Uh but also I bet you could go maybe go back to it had a much more fractured sort of system in say golden age Netherlands right the old uh Dutch Republic where taxes were there was no the there wasn't this income tax scheme where just like hey from the center we're just going to oppose t we're imposing taxes on every individual within the country. there was a lot more fragmentation and intermediation and as the way it is now as as you kind of mentioned earlier in your definition of tax state the only thing holding back the tax state is how much can it collect and administer and spend. It's it it's really almost limitless in terms of what they can do short of uh triggering a rebellion of some kind where people just simply refuse to pay the tax or maybe at the individual level people start to engage in violence uh in a widespread maybe decentralized way. Uh but certainly we're not living in the older system where there were real checks on what sort of taxes could be done and which there wasn't really direct taxation at all. there was just taxation on maybe the government level below you and we're way beyond that now as as Shumpeter notes and Sheder calls as you noted the king was really kind of a um a prince among equals in the sense of all of these other powerful lords. They weren't keen on handing over tax revenue and they had the means both the military and the legal means to resist greatly. Uh, and this wasn't like just some nobody who lives down the street and decides he's he's now a sovereign citizen. He's not going to pay tax, right? These people had the actual means to resist the payment of tax and that could act as a real check uh on the king. But in the modern tax uh tax state, it's it's nothing nothing like that at all, it seems. And there's just none of these old institutional barriers. >> Yeah. No, I think that's right. I mean, number one, there's there's no intermediation. Number two, there's uh there's a central bank that can uh spend well beyond what they're even able to collect in taxes and then they're able to quietly inflate away uh whatever else is left that they can't collect. And that's why I think inflation really needs to be taught to students as a tax that that it is that it is what is happening because they could not the government could not go to the the Congress the Congress could not go back to the electorate and say hey uh we're going to fund all this by taxing you directly. Uh but it's it's the same it's the same thing. Um and with regard to sort of the older states it's yes I mean that there were there it was not a monopoly system. There were counterbalancing centers of power. There were intermediating institutions um corporate bodies, church bodies and it was just expected that a ruler would live off quote unquote live off their own. These were domain states. They were household states. You lived as a ruler or lord. you lived off your own revenue. Uh rents from your estates, tolls for different bridges there. Um you'd often have things like a mill where people would come mill their uh their wheat berries or whatever the case may be for a fee. Um spoils of war obviously. Um and just this whole idea of taxation. Uh this was considered totally extreme. And you referenced in your article from yesterday or two days ago uh Aquinus uh you know the most important Catholic theologian of the medieval period who said this look this is really just a last resort. It's potentially sinful um that princes should you know quote abstain from despoiling their subjects. um the idea of this permanent all-encompassing tax system or state like it it it wasn't even ethical uh let alone feasible. Forget feasibility just wasn't considered ethical. And that's where I think the uh the the secularizing Mchavelian turn that Rothbar documents in volume one of his history of economic thought is is so important um because it strips away that quote unquote problem essentially from the perspective of a ruler that wants to expand the power of their state which means they need to expand their power to tax. Well, let's it's good that you bring up Makaveli because I think that brings us to our last question here, which is this you in a more recent column had talked about absolutism and the rise of the state. And I think a lot of the time when we talk about, oh, there they go again, those libertarians talking about monarchy and how great it is, except that we're making important distinctions between different types of monarchy, right? We're talking about an extremely decentralized system where there was effectively was no state. There was no state bureaucracy. Uh and the the king at the top faced significant checks on his power and could not really act freely outside of his own personal property. And that's what we're talking about when when we're speaking well of monarchs generally. But there's also the absolutist monarchies. This was what came later. This is the early modern period, the Renaissance. Uh, and bizarrely somehow a lot of people have this very incorrect view of history where the the older monarchy was was the monarchy of absolute rule and the king being all powerful and then along came the Renaissance and then people just realized they had rights and so then they started to restrain the government. But that's that's backward, right? The Renaissance, at least the the late Renaissance for sure. The early Renaissance still had some good medievalism to it. The late Renaissance for sure was was accepting Mchaveli's view of the state. And when when we look at that then we're looking at the centralization of the state, the uh the assertion of sovereignty, the idea that whatever the prince says should go. These were all new things and led to the absolutism then of later centuries, the 16th and 17th centuries and that I think was the building block to what we now see as the the modern tax state. And Rothbart had some views about this as well. So can you tell us a little bit about I don't think our average American listener thinks a lot about absolutism or the age of absolutism. So can you tell us a little bit how this was a a transition from earlier ideas then to to paving the way for the modern state? >> It was the bridge between the old domain state and the modern tax day. I mean it was a perfect bridge. It was the stage at which rulers began to develop the critical fiscal and very importantly ideological tools to make taxation routine to start justifying it in the name of the you know quote public good. So thinkers like uh Mchaveli, Bodhdan and uh rulers like Louis the 14th the private interest of the monarch gets transmuted into this uh res the reason of state right where all of a sudden what was good for the monarch is transmuted into what is good for all of us since the person the person of the king is being transformed into a function that the the the king is no longer just a person they are a function of the body politic. So it's this kind of um bit of slight of hand there. And so in practice, this meant that whatever benefited the ruler's power was equated with the welfare of the people. And as I noted in that in that column, this was really a decisive turning point. The monarch ceases to be a person and becomes an institution of themselves. They become the state themselves. And the fusion of ruler and realm legitimized this kind of continuous taxation. the state is no longer living off its own domain. It's living off of society's wealth. It's um uh it's sending out uh bureaucrats. Uh a lot of times uh these uh monarchs, what they wanted to do was they um they actually didn't want to use their fellow nobles. What they actually wanted to do was uh suborn them and make them dependent on the state and use because they had independent bases of power potentially. And so the monarchs like Louis the 14th, he's the typical one that people use as an example. He wanted middle class people to serve as functionaries to do that because they were entirely dependent on him. And then the nobility who had become militarily irrelevant and who were becoming politically irrelevant as because he could extract this wealth. He no longer needed to go to their parliament or call the estates general. Like the Bourbon kings didn't call the estates general for like 150 years. um they would bring them to Versailles to the court and then they would have them compete over just trivial court favoritism and they'd get their little pensions and synicures and they became part of of the of the state apparatus. And so it was it was a if you wanted to be an absolute monarch, you needed to destroy the intermediating institutions and you needed to destroy any counterveailing possible uh uh loai of power outside of yourself. And as you said, if the Duke of Burgundy the Duke of Burgundy isn't just your neighbor, he's got military forces. Like if they they had a they had a war, right? They he had to at one point the French kings had to fight a war to suborn the Duke of Burgundy. Um and it was, you know, a close run thing. Uh we can think of all the different ways counterfactually Europe could have looked different, but yeah, that that's not good. If you're a if you're a monarch and you're a status, you want to wield the only legitimate monopoly on violence within your territorial unit and relying on others having give and take reciprocal relationships. That's what they were out to destroy. And the ideology of pure power politics that people like Mchaveli normalized and articulated was critical to that. Whatever was good wasn't what served the Christian ideal of what made you a good king. What was what was good was what enhanced your power as a ruler. That's that's what Mchaveli is arguing. So, and that was a that was a an incredible turn with sitting here today and reading Mchaveli. I feel like a lot of us just kind of like, yeah, yep. Uh-huh. Yeah. That's not how it was received in his time. Uh, and Rothbart has a great bit on that. um about Nick, old Nick. Um so yeah, it was it was considered just terrible. Just the most outrageous thing people had ever heard that a king shouldn't try to be a representation of of you know God's good sovereign that they should just lie if it suits them and you know ends justify the means. um you know he was very much a Renaissance man in in that way because part of rediscovering these old texts was rediscovering uh you know more totalitarian thinkers like Plato and Socrates who said look if if a lie serves your purpose then you should lie. So >> yeah, Rothbart not a fan of Machu Valley and and also serves that more accurate view I think of the Renaissance which was it was a time that preferred state power to individual power that preferred uh solid uh centralized regimes to uh the more soft civil government of the Middle Ages which was much more in flux much more fluid um and of course was more Christianized than what was erred in the Renaissance and and a step back to the ancient world that was a step backward in terms of of freedom like looking to the Romans to get ideas on how to structure your society was not an improvement over uh medieval governance. uh and that I cover that actually in uh in my my column about how the medievals hated taxes from from Monday is even medievalists. Now we'll talk in terms of uh well a peasant in the 8th century wasn't really any worse off than he was in the 4th century under the Romans. If anything, he was possibly better off because the Romans actually didn't provide much service in terms of safety and quality of life. But they always came around to collect taxes. And at least in the early Middle Ages, you could kind of see what you were getting in exchange for your dues. The the local lord actually would provide some military defense because he would suffer too if he was unable to provide those services. He had skin in the game unlike the Roman state who couldn't have cared less about these peripheral farmers out in Western Europe somewhere, right? And so yeah, looking back to uh the Greeks and Romans, we all hear all these things about the Athenians, how great they were, but that was but kind of the best you could hope for. There were plenty of other Greek ideas that uh were less than ideal when it came to respect for human freedom. And Rothbart, yeah, understood all of that. And that that was how we ended up with the tax state was this this overthrow of the the decentralized earlier ideas. And uh I I think you're absolutely right about just the nature of absolutism and and so I would encourage then our our listeners, our readers to look a little bit more into that. Well, I'll include some links with this uh and also just lately on the page and and I'm sure Joseph is going to continue to to write every now and then on these topics and I'll put some more as well. But I think really the key to understanding where we are in terms of the strength of the state, you have to to look at the process by which it was put together. And if you don't know the key hallmarks of that process, it's harder to identify the bad things that current regimes are doing because they're they're using the same uh strategies that they were using 500 years ago. strategies of centralization, the strategies that you describe in terms of circumventing people who could actually resist and then buying off other classes of people who then are more reliable servants like going around the nobility, the bourgeoisi and that sort of thing. So I think all of those elements are important to know and I think tell us a lot about how we got where we are and maybe offer even a road map to undoing all of that. the key being the undoing of the centralization as probably the the most important aspect of that. Um, but Joseph, thank you for joining me today. There's of course a lot more we could say on this and and perhaps we can get together again to talk a little bit more about this in the future as well. Uh, but that's going to be have to be uh about it for today. Thank you for joining me. Thank you everyone out there for listening. We'll be back next time with more. So, we'll see you then. [Music]
Taxes, War, and the State are Freedom’s Biggest Enemies
Summary
Transcript
[Music] Welcome back to Radio Rothbard. I'm Ryan McMaken, executive editor at the Mises Institute. And this week, we're going to talk a little bit about the tax state. That is that's the sort of state we live under today. This is the sort of state that can freely tax anyone and anything it wants with minimal push back from any parties within the country where that state rules. Now, to join me to talk about that today and some of the history behind the the modern tax state, we have Joseph Cis Mullen. Now, Joseph's been on before uh and he's an instructor of history and political science and economics at Spring Harbor University in Michigan. And the reason I had him on to talk about this is just coincidentally uh we were writing on some similar topics for mises.org. So we've had some columns come out covering some similar territory and we both just happen to decide in recent months to read Joseph Schumpeder who has a I think a fairly influential lecture from 1918 uh called the crisis of the tax state and he goes into a whole history of the tax day where it comes from and what are the implications of its modern form. He's saying that in 1918, but things haven't really changed, improved, uh certainly haven't improved since then in terms of some of the issue issues he covers. So, we'll we'll talk about that a little bit now. So, Joseph, uh thank you for joining me today and thank you for writing topics on an article that interested me and which I happen to be writing on also so that we can do this right now. >> Um, >> thanks for having me. It's always a pleasure to join you guys. Well, why don't you just start off by telling us a little bit about Joseph Schumpeder? Now, people often get confused because Schumpeder was an Austrian economist. That is, he was an economist from Austria, but he wasn't an Austrian school economist. Uh, nevertheless, as you point out as which I've said and which Ralph Reiko has said, and of course you and I have talked about Reiko a bit, is that Shrimper has a lot of valuable insights. So tell us just a little bit about Schumpeder uh and and why we read him even though he's not an Austrian school guy. >> Of course. So Schumpeder as you said he is an Austrian and an economist. He's one of the great theorists of capitalism and entrepreneurship from the early 20th century. Really he starts writing his more mature works in the 20s and 30s, early 40s. The central idea that most people are familiar with with him is the idea of creative destruction. Uh that being the idea that uh you know capitalism is unpredictable. It destroys one thing in order to make another thing and that this is what makes market economy so dynamic. Um he wrote theoretical works as well on history and the development of the state. You referenced uh that I say the crisis of the tax state which was from 1918. uh he looked at the the fiscal and institutional evolution of the of the modern state which is something that Rothbart of course as well was very interested in and who wrote great works on that. Uh so for Schumpeder the state was not you know some abstract moral actor serving the you know quoteunquote public good but it was a concrete historical formation whose limits were defined only by its fiscal capacity that is by how much revenue it could raise through taxation borrowing and inflation and so while you're right he wasn't an Austrian in in this Austrian economist like a misus or a Rothbart you know he shared that fundamental skepticism towards state power and state expansion. and he understood that a state's ability to finance itself is what enables it uh to attempt whatever it wants to do. So it's that fiscal capacity that kind of becomes selfreinforcing especially during crises and wars which lead to that sort of permanent ratcheting up of power that people like Higs talk about and which is something that that I talk about in my own work as well. So, >> and I think just so that to help people classify Schumpeder in their minds as well, I think one of the things he's perhaps best known for among people who read this sort of thing is that he was a pessimist when it came to the idea of the liberal capitalist state, right? He thought it would fail, not for the reasons Mark said, but for other reasons. Can you tell us what those reasons were? >> Absolutely. And and uh capitalism, democracy, and socialism is right on the shelf behind me there. Um he believed that interestingly that that it was that it was a process essentially of decay that capitalism would breed comfort and success and would create an environment that was detrimental to the entrepreneurial spirit and in the same uh kind of vein that Dtoqueville had talked about with soft desperatism that this would lead to a wealthy society that could fund this very large state and that more and more of society's functions would be taken taken over by this bureaucratized state and that that is that is socialism. And from there it's just it's a gradual little step one after another down the road to socialism. And it's he believed that capitalism could not last. And he believed that socialism quote unquote uh that is state intervention in the economy could work that we would all be poorer and worse off and not as free. But he said look it's not going to be like such a horrible catastrophe that it won't work. um we're just going to be all way worse off and that capitalism will ultimately fail because uh it's very difficult once you have uh that wealth and especially once you have a state. I mean, I've had this I've had this talk with my students as well about like, well, why can't we have like a minimal stay and a night watchman's day? These nozzikian type ideas and it's like, guys, I I love you and I I like that book, too. And I like that idea. But you see, it's it's the fact that it exists and that it has the ability to act and that in a crisis, it's going to get that power and it's just a matter of time. It's really just a matter of time before that happens. So that was that was his theory of why capitalism would fail is that it would breed a society that was antithetical to it. you just published at the institute Hayek's essay uh book of essays uh and one of them is um the intellectuals and socialism where he talks about why socialism and Rothberg wrote about this as well and uh this is one of Schumpeder's themes that he plays on as well is that the intellectuals will turn against capitalism and embrace socialism and so he was very Prussian he was very unfortunately Prussian >> well uh I guess we could describe him then as part the um the pessimistic school of uh capitalists. Rothbart probably would represent the optimistic school. Uh I think he felt that the state would break down. Uh Rockwell as well probably thinks that the state will break down due to its own internal contradictions. But what is the time frame on that sort of thing? But yes, Schumped a very interesting author also wrote a history of intellectual thought has opinions about um for example Adam Smith and just the whole history of liberalism. I just remember it was I don't know if Shumpeder invented the idea but certainly one of the first places I encountered uh the the pathy phrase that uh what uh what Smith uh was right about was totally unoriginal and what and when he was original he was wrong. >> Quite right. >> So he was something of a skeptic about Smith which Rothbart was as well. So yeah, don't you can't put totally on Rothbard the the because Rothbard gets often u excoriated even by people who like Adam Smith and oh Rothbard went too hard on Smith. Um and just because Smith wasn't some full full hardcore anarcho capitalist type. The reality is that Schumper really disliked Smith too. Didn't want to give him much credit for anything at all. And so you can and that's just in some of his earlier works that are just very very interesting. So >> uh very Austrian school adjacent. Um and he he comes up here on mises.org every now and then and it certainly got mentioned uh gets mentioned by some of our own historians of political thought because of his uh important contributions to that. But let's look at his his view of the tax state. Now, we both were just perusing his thought on this issue about the idea of the tax state, which seems to be his rise of the tax state idea seems to just be similar to the rise of the state in general. That the modern state as we think of it is is somewhat I don't want to go out and say synonymous with the tax state. I think it's there's maybe some distinctions there, but it's pretty darn similar from what I can see. But but I don't know. Give me your view on when Schumpeder is talking about the tax state. What what's he talking about? >> Well, no, that I think you're exactly right. It it's not that we need to say they're interchangeable. I don't know that you need a strict definition of saying, well, here's where one ends and one begins because I I think it's very interesting when we look at the the transformation of medieval monarchy and the rise of the you know largem modern um fiscal military centralized bureaucratized absolutist state. So, and I think we're going to talk about that here later on so I won't go too into it now. The tax state as Shimper used it was it was for a modern state quote unquote. Its existence entirely depended on and was to a significant extent defined by its ability to extract resources from society through taxation. So earlier on in the medieval period rulers funded themselves from their private estates from feudal dues from tolls from other rents. Taxation was episodic, a very extraordinary measure, often justified by war or famine. Very oftentimes, it wasn't even paid in money. It was a service that was due. By contrast, the modern tax state makes taxation its normal and permanent mode of existence. It it no longer simply raises revenue to protect life or property, but it uses its fiscal apparatus as an instrument of social engineering ultimately is where that goes. And in Chuner's view, the tax day is the culmination of the process by which government becomes increasingly interventionist, redistributing wealth, manipulating economic outcomes, sustaining vast bureaucracies. And he thought that this transformation obviously carried immense dangers once the state masters borrowing and inflationary finance and taxing. There are basically no natural limits left and fiscal power becomes political power and that erodess economic and political freedom. So it all kinds of build kind of builds on itself. And it just so happens that I was kind of explaining rather recently in a lecture to my class that look it was it was all these different pressures that were happening originally. If I was a medieval king and I needed to have some war with one of my rivals, I needed to negotiate this with my vassals who were very powerful lords in their own right and who technically owed me vasselage, but I couldn't just command them to do so. I not not unless I wanted to provoke a rebellion probably. And so it was a very mutualistic give and take process. And they would bring their own forces with them, knights on horseback and stuff. And as that mode of warfare became increasingly irrelevant by the 13th early 14th century, the nobility loses that military role as infantry and long bowmen and crossbowmen and then later on uh gunpowder weapons come along. All of a sudden they have no military role. And so they start substituting that for payments to the king and money so that he can hire armies and provision and clothe them. And as warfare intensified, they then wanted the kings, they wanted to be able to extract more money out of the population that they controlled. And this is where the bureaucratic apparatus comes into play is that's what it was for. It was to extract wealth from the population. That's all it was for. Wasn't to like make their lives better or some kind of, you know, that's sort of the veneer that gets put on it later, but that that's really where it comes from. And one of the first times you and I talked um we talked about war made the state >> and that was that was true. It was war made the state. Um and then the state went and made more war. So >> sorry. >> I think that was Charles Till's uh quote on that too, right? I think he really pioneered that idea is that war made the state and state made war. >> Yeah. >> And because it works in both directions. Well, and and of in the last 10 days or so, I've written a couple of columns making some similar points, right? Is that you have the tax state, and I I wanted to add some additional definitions of the tax state because I think that a lot of times people just don't even realize how welldeveloped the tax state is in modern times. And then we can contrast that with other systems. So for example, right and the US is absolutely 100% a fully developed tax state, right? There is no >> it before 1913, you might have argued that it wasn't. But since the innovation of the income tax, absolutely in every way, the US government is a fully developed tax state because it fulfills all of the basic components of being a tax state. It can impose direct taxation on anybody and everybody all at once. It doesn't have to ask the permission of a local government or a state government or some intermediating group if it can apply taxes down all the way to the individual level within every region of the country. Right now, if this were something more of a medieval model, if the if the the central government wanted to impose a tax on a citizen of Tennessee, for example, they would have to go to the Tennessee government and say, "Well, you've got that person there produces a lot of wealth. Can you give me some of it?" So, they're having to go to an intermediating force and asking for uh for some resources indirectly. But that's not how the US government works. It imposes direct taxes. Also, there isn't any other entity within the central government or within the United States that can prevent the imposition of a tax. Right? If a m bare majority in Congress says we're raising taxes, nobody else can do anything to stop it. The the state governments cannot veto it. There is the state court certainly can't veto it. There's there's nothing in between where any other organization can say no, you can't just raise this tax at will. So that's the other major component of the tax state is it's just it's simply as as they please there they don't have to get anybody else's permission outside the central government. And then another major component is once the tax revenue is collected they can spend it on whatever they want. That's and I think that's a big distinction too with earlier time periods was if you were paying fees or imposts uh dues of some kind uh the you were mandated as the the one who collected the taxes the one who received the tax or in many case they weren't even really taxed they were fees because they were tied to a specific service you had to provide a service that was tied to the source of that tax. It was like, "Okay, can you provide me for this thing and I'm going to do XYZ with it there?" Nobody thought it was a good idea to let the central government collect taxes and then do whatever it wanted and spend them and however the central government saw fit. So we however live in a system where you got money rolling in from dozens of different sources and who decides how to spend it? Only the central government. They have total cart blanch about how to spend that money. So when you look at all of those components combined that I think defines the modern tax state and look looking back at some of the things that you just brought up right there were previous regime types that were not tax states th those were these earlier pre-state regimes often medieval monarchies. Uh but also I bet you could go maybe go back to it had a much more fractured sort of system in say golden age Netherlands right the old uh Dutch Republic where taxes were there was no the there wasn't this income tax scheme where just like hey from the center we're just going to oppose t we're imposing taxes on every individual within the country. there was a lot more fragmentation and intermediation and as the way it is now as as you kind of mentioned earlier in your definition of tax state the only thing holding back the tax state is how much can it collect and administer and spend. It's it it's really almost limitless in terms of what they can do short of uh triggering a rebellion of some kind where people just simply refuse to pay the tax or maybe at the individual level people start to engage in violence uh in a widespread maybe decentralized way. Uh but certainly we're not living in the older system where there were real checks on what sort of taxes could be done and which there wasn't really direct taxation at all. there was just taxation on maybe the government level below you and we're way beyond that now as as Shumpeter notes and Sheder calls as you noted the king was really kind of a um a prince among equals in the sense of all of these other powerful lords. They weren't keen on handing over tax revenue and they had the means both the military and the legal means to resist greatly. Uh, and this wasn't like just some nobody who lives down the street and decides he's he's now a sovereign citizen. He's not going to pay tax, right? These people had the actual means to resist the payment of tax and that could act as a real check uh on the king. But in the modern tax uh tax state, it's it's nothing nothing like that at all, it seems. And there's just none of these old institutional barriers. >> Yeah. No, I think that's right. I mean, number one, there's there's no intermediation. Number two, there's uh there's a central bank that can uh spend well beyond what they're even able to collect in taxes and then they're able to quietly inflate away uh whatever else is left that they can't collect. And that's why I think inflation really needs to be taught to students as a tax that that it is that it is what is happening because they could not the government could not go to the the Congress the Congress could not go back to the electorate and say hey uh we're going to fund all this by taxing you directly. Uh but it's it's the same it's the same thing. Um and with regard to sort of the older states it's yes I mean that there were there it was not a monopoly system. There were counterbalancing centers of power. There were intermediating institutions um corporate bodies, church bodies and it was just expected that a ruler would live off quote unquote live off their own. These were domain states. They were household states. You lived as a ruler or lord. you lived off your own revenue. Uh rents from your estates, tolls for different bridges there. Um you'd often have things like a mill where people would come mill their uh their wheat berries or whatever the case may be for a fee. Um spoils of war obviously. Um and just this whole idea of taxation. Uh this was considered totally extreme. And you referenced in your article from yesterday or two days ago uh Aquinus uh you know the most important Catholic theologian of the medieval period who said this look this is really just a last resort. It's potentially sinful um that princes should you know quote abstain from despoiling their subjects. um the idea of this permanent all-encompassing tax system or state like it it it wasn't even ethical uh let alone feasible. Forget feasibility just wasn't considered ethical. And that's where I think the uh the the secularizing Mchavelian turn that Rothbar documents in volume one of his history of economic thought is is so important um because it strips away that quote unquote problem essentially from the perspective of a ruler that wants to expand the power of their state which means they need to expand their power to tax. Well, let's it's good that you bring up Makaveli because I think that brings us to our last question here, which is this you in a more recent column had talked about absolutism and the rise of the state. And I think a lot of the time when we talk about, oh, there they go again, those libertarians talking about monarchy and how great it is, except that we're making important distinctions between different types of monarchy, right? We're talking about an extremely decentralized system where there was effectively was no state. There was no state bureaucracy. Uh and the the king at the top faced significant checks on his power and could not really act freely outside of his own personal property. And that's what we're talking about when when we're speaking well of monarchs generally. But there's also the absolutist monarchies. This was what came later. This is the early modern period, the Renaissance. Uh, and bizarrely somehow a lot of people have this very incorrect view of history where the the older monarchy was was the monarchy of absolute rule and the king being all powerful and then along came the Renaissance and then people just realized they had rights and so then they started to restrain the government. But that's that's backward, right? The Renaissance, at least the the late Renaissance for sure. The early Renaissance still had some good medievalism to it. The late Renaissance for sure was was accepting Mchaveli's view of the state. And when when we look at that then we're looking at the centralization of the state, the uh the assertion of sovereignty, the idea that whatever the prince says should go. These were all new things and led to the absolutism then of later centuries, the 16th and 17th centuries and that I think was the building block to what we now see as the the modern tax state. And Rothbart had some views about this as well. So can you tell us a little bit about I don't think our average American listener thinks a lot about absolutism or the age of absolutism. So can you tell us a little bit how this was a a transition from earlier ideas then to to paving the way for the modern state? >> It was the bridge between the old domain state and the modern tax day. I mean it was a perfect bridge. It was the stage at which rulers began to develop the critical fiscal and very importantly ideological tools to make taxation routine to start justifying it in the name of the you know quote public good. So thinkers like uh Mchaveli, Bodhdan and uh rulers like Louis the 14th the private interest of the monarch gets transmuted into this uh res the reason of state right where all of a sudden what was good for the monarch is transmuted into what is good for all of us since the person the person of the king is being transformed into a function that the the the king is no longer just a person they are a function of the body politic. So it's this kind of um bit of slight of hand there. And so in practice, this meant that whatever benefited the ruler's power was equated with the welfare of the people. And as I noted in that in that column, this was really a decisive turning point. The monarch ceases to be a person and becomes an institution of themselves. They become the state themselves. And the fusion of ruler and realm legitimized this kind of continuous taxation. the state is no longer living off its own domain. It's living off of society's wealth. It's um uh it's sending out uh bureaucrats. Uh a lot of times uh these uh monarchs, what they wanted to do was they um they actually didn't want to use their fellow nobles. What they actually wanted to do was uh suborn them and make them dependent on the state and use because they had independent bases of power potentially. And so the monarchs like Louis the 14th, he's the typical one that people use as an example. He wanted middle class people to serve as functionaries to do that because they were entirely dependent on him. And then the nobility who had become militarily irrelevant and who were becoming politically irrelevant as because he could extract this wealth. He no longer needed to go to their parliament or call the estates general. Like the Bourbon kings didn't call the estates general for like 150 years. um they would bring them to Versailles to the court and then they would have them compete over just trivial court favoritism and they'd get their little pensions and synicures and they became part of of the of the state apparatus. And so it was it was a if you wanted to be an absolute monarch, you needed to destroy the intermediating institutions and you needed to destroy any counterveailing possible uh uh loai of power outside of yourself. And as you said, if the Duke of Burgundy the Duke of Burgundy isn't just your neighbor, he's got military forces. Like if they they had a they had a war, right? They he had to at one point the French kings had to fight a war to suborn the Duke of Burgundy. Um and it was, you know, a close run thing. Uh we can think of all the different ways counterfactually Europe could have looked different, but yeah, that that's not good. If you're a if you're a monarch and you're a status, you want to wield the only legitimate monopoly on violence within your territorial unit and relying on others having give and take reciprocal relationships. That's what they were out to destroy. And the ideology of pure power politics that people like Mchaveli normalized and articulated was critical to that. Whatever was good wasn't what served the Christian ideal of what made you a good king. What was what was good was what enhanced your power as a ruler. That's that's what Mchaveli is arguing. So, and that was a that was a an incredible turn with sitting here today and reading Mchaveli. I feel like a lot of us just kind of like, yeah, yep. Uh-huh. Yeah. That's not how it was received in his time. Uh, and Rothbart has a great bit on that. um about Nick, old Nick. Um so yeah, it was it was considered just terrible. Just the most outrageous thing people had ever heard that a king shouldn't try to be a representation of of you know God's good sovereign that they should just lie if it suits them and you know ends justify the means. um you know he was very much a Renaissance man in in that way because part of rediscovering these old texts was rediscovering uh you know more totalitarian thinkers like Plato and Socrates who said look if if a lie serves your purpose then you should lie. So >> yeah, Rothbart not a fan of Machu Valley and and also serves that more accurate view I think of the Renaissance which was it was a time that preferred state power to individual power that preferred uh solid uh centralized regimes to uh the more soft civil government of the Middle Ages which was much more in flux much more fluid um and of course was more Christianized than what was erred in the Renaissance and and a step back to the ancient world that was a step backward in terms of of freedom like looking to the Romans to get ideas on how to structure your society was not an improvement over uh medieval governance. uh and that I cover that actually in uh in my my column about how the medievals hated taxes from from Monday is even medievalists. Now we'll talk in terms of uh well a peasant in the 8th century wasn't really any worse off than he was in the 4th century under the Romans. If anything, he was possibly better off because the Romans actually didn't provide much service in terms of safety and quality of life. But they always came around to collect taxes. And at least in the early Middle Ages, you could kind of see what you were getting in exchange for your dues. The the local lord actually would provide some military defense because he would suffer too if he was unable to provide those services. He had skin in the game unlike the Roman state who couldn't have cared less about these peripheral farmers out in Western Europe somewhere, right? And so yeah, looking back to uh the Greeks and Romans, we all hear all these things about the Athenians, how great they were, but that was but kind of the best you could hope for. There were plenty of other Greek ideas that uh were less than ideal when it came to respect for human freedom. And Rothbart, yeah, understood all of that. And that that was how we ended up with the tax state was this this overthrow of the the decentralized earlier ideas. And uh I I think you're absolutely right about just the nature of absolutism and and so I would encourage then our our listeners, our readers to look a little bit more into that. Well, I'll include some links with this uh and also just lately on the page and and I'm sure Joseph is going to continue to to write every now and then on these topics and I'll put some more as well. But I think really the key to understanding where we are in terms of the strength of the state, you have to to look at the process by which it was put together. And if you don't know the key hallmarks of that process, it's harder to identify the bad things that current regimes are doing because they're they're using the same uh strategies that they were using 500 years ago. strategies of centralization, the strategies that you describe in terms of circumventing people who could actually resist and then buying off other classes of people who then are more reliable servants like going around the nobility, the bourgeoisi and that sort of thing. So I think all of those elements are important to know and I think tell us a lot about how we got where we are and maybe offer even a road map to undoing all of that. the key being the undoing of the centralization as probably the the most important aspect of that. Um, but Joseph, thank you for joining me today. There's of course a lot more we could say on this and and perhaps we can get together again to talk a little bit more about this in the future as well. Uh, but that's going to be have to be uh about it for today. Thank you for joining me. Thank you everyone out there for listening. We'll be back next time with more. So, we'll see you then. [Music]