Thursday, October 25, 2007

Context is Important When Quoting Adam Smith

Robert Reich’s Blog carries this post (24 October):

"Who Pays the Dollars that Finance Bush's War? More on a Fair Tax Burden

In his discussion of war finance he states (legitimately):

If we’re serious about national defense – as well as all the other things we need (police, fire fighters, roads, bridges, schools, and clean water, to name a few)- it's your COUNTRY. And the principle for who’s gonna pay should be equal sacrifice.”

And he adds:

Even Adam Smith saw the wisdom of a graduated tax. “The rich should contribute to the public expense, not only in proportion to their revenue, but something more in proportion,” he wrote. (Wealth of Nations, vol. 2, ed. Campbell, Oxford U Press, 1976, p. 840.)”

The quotation from Adam Smith is from the Oxford University Press, ‘Glasgow Edition’ of Wealth Of Nations is on page 842, not page 840 and is found at: WN V.ii.e.6.

For accuracy, the context in which Adam Smith is making this wholly acceptable assertion is in his discussion of house rents, which is a commodity widely differentiated by quality, convenience and splendour, and it begins:

A tax upon house-rents, therefore would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be any thing very unreasonable.” Professor Reich’s quotation follows: “The rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.” [WN V.ii.e.6: p 842]

When quoting from Adam Smith, as many do, it is incumbent on the writers to make clear the context otherwise a particular statement by Adam Smith can be given a general meaning, in this case for all forms of taxation, when Adam Smith may have intended to refer to a particular case.

Smith preferred that taxation should fall, where possible, on luxuries rather than basic necessities. Housing is a necessity but housing came in all levels of opulence and was therefore treatable as a luxury for some taxpayers, who in consequence should may more tax on their houses and palaces.


Blogger bgrennon said...


Are you sure Smith wasn't referring to ground rent rather than house rent?

"Both ground rents and the ordinary rent of land are a species of revenue which the owner, in many cases, enjoys without any care or attention of his own... Ground rents seem, in this respect, a more proper subject of peculiar taxation... Nothing can be more reasonable than that a fund which owes its existence to the good government of the state should be taxed peculiarly…" Vol 3, Book 5, Ch 2, Pt 2, Art 1, P 289

10:24 am  
Blogger Shep said...

Gavin, you left out the first part of the context:

"The necessaries of life occasion the great expense of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. A tax upon house-rents, therefore, would in general fall heaviest upon the rich."

To me he's saying that a graduated tax on the rich for rent is just a specific example of why a graduated tax in general is needed-
Since a flat tax is always a greater burden on the poor

10:25 pm  

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