Hayek, Mises and Classical Liberalism

Last month I gave a lecture at SFL-PH, small but engaged audienced.

Six sections: (1) Hayek, (2) Mises, (3) Classical liberals, (4) Pre-classical, (5) Modern liberals, and (6) Bonus. Hayek was a very prolific writer, produced many books and manuscripts from 1931 to 1980s. 

Likewise among his mentors, Mises was also a prolific writer.

Among the classical liberals, Adam Smith was a stand out. His prior work "Theory of Moral Sentiments" provided the philosophical and economic background to his more famous work, "The Wealth of Nations."

Other classical liberals were David Ricardo (labor theory of value, theory of comparative advantage, etc), John Locke (social contract theory, Treatise on Government, etc.), JS Mill, etc.

But more than 1,000 years before Adam Smith, perhaps the world's first liberal was an Asian, the philosopher from China.

The recent liberals, there are many of them now.

The full 36-slides presentation is posted in my slideshare account. Thank you.

BWorld 177, On MMDA car towing and impounding

* This is my column in BusinessWorld last December 29, 2017.

“Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes and a tolerable administration of justice: all the rest bring about by the natural course of things.”

— Adam Smith, lecture in 1755; author of The Wealth of Nations (1776)

This is the continuation of my article, “The MMDA towed my car even with my kids inside” published here on Dec. 21.

Through a mutual friend, I was able to talk to Mr. Mike Salalima, Deputy Chief of Staff of MMDA Chairman Danny Lim, last Dec. 20, a day after my car was towed by MMDA-accredited Fighter Towing Co. (not Tiger as I’ve previously written and for that I apologize.)

Mike said that my case was not a case of an “unattended vehicle” and hence, the penalty should have been a simple violation ticket of anti-illegal parking. Thus, the towing from Makati City to Tumana, Marikina City (which took three hours) and impounding of my car was wrong. So he arranged for the release of my car that day and canceled my towing fee, which I estimated would cost about P6,000 (P1,500 first 4 kilometers for light vehicles plus P200/km thereafter).

Mike asked me if I wanted Fighter Co. to tow my car back to Makati City but I refused since they caused my troubles in the first place and that they might damage my car on the way back.

After the meeting with Mike, I then took a long commute from the MMDA main office in Edsa Guadalupe to Marikina City. I saw the impounding area the day before and when I saw it again that day to get my car, I was aghast at hundreds of impounded vehicles — cars, vans, taxi, jeepneys, delivery trucks, tricycles, motorcycles. Those vehicles should be transporting people and goods, not gathering rust. Private properties, many of which were the result of years of savings and sacrifices such as working abroad for several years, were impounded for months and even years on end, wasting away.

Why would the state through an agency like the MMDA have the power to confiscate private property? And in large numbers at that? Is it not the protection and respect of private property an important function and purpose why governments were created in the first place?

As the quote from Adam Smith suggested, the state can rise from barbarism to opulence and wealth via peace not violence, few taxes, and permits, not more, confiscatory justice administration, however tolerable.

For sure, not all of those hundreds of confiscated vehicles were impounded during the time of Chairman Danny Lim. They have accumulated since many years ago as evidenced by the amount of rust, degree of physical deterioration and height of grasses and vines that have engulfed many vehicles. A number of those vehicles though looked like some of their parts have been removed or stolen.

The purpose of towing and impounding is to help reduce traffic congestion in Metro Manila by removing temporary or permanent obstructions in selected roads. But the act of towing a briefly parked vehicle with the driver just nearby and bring it to a place many kilometers away is already creating traffic in more areas of the metropolis.

I was inside my car while it was being towed and I saw the towing truck made several traffic violations, such as (a) counter-flowing traffic in a section of Makati Avenue towards Buendia and (b) beating the red light from the Green Meadows area turning left towards C5. It was a regular case of government-accredited vehicles to correct traffic violations being traffic violators themselves. Those trucks were rushing to tow and impound as many cars as possible in a day because of the big money involved collecting the towing fee.

Drastic changes need to be instituted by the current MMDA leadership on the system of towing and impounding of vehicles. Two of possible moves would be: (1) Stop the towing and impounding scheme unless vehicles were used in committing crimes like murder and robbery. Violations of anti-illegal parking should be slapped with fines, higher fines if they want, and/or clamping of unattended vehicles. Or (2) allow the process of towing to be subject to challenge by vehicle owners and when the MMDA personnel and private towing companies are found to be wrong in their judgment, they must pay the vehicle owner/s two to three times the estimated towing fee plus any damages to the vehicles.

Governments should go back to their classical raison d’etre or reason for existence — protect the people’s right to life, right to private property, and right to liberty. It is not government function to create many restrictions and prohibitions in society like so many “No Parking” areas, so many requirements and costly permits before people can do business like operating a van to transport people and goods. Having many restrictions and prohibitions means many violations, fines and penalties; many opportunities for harassment and extortion of often helpless and less-informed citizens.

---------------

See also:

BWorld 174, MMDA towed my car even with my kids inside, December 31, 2017 

BWorld 175, Trends in global and Philippine trade, January 05, 2018 

BWorld 176, Road trips and PPP projects, January 06, 2017

Weekend Fun 62, The invisible hand

I got this from an economist friend's fb wall. Brilliant humor.

“By directing that industry in such a manner as its produce may be of greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.” -- Adam Smith, The Wealth of Nations

This slide I got from an Indonesian friend presented at the EFN Asia conference 2004 in HK.

On another note, it will be the UPSE annual alumni homecoming later today. I will attend, as usual.

These 5 political personalities, either UPSE alumni or faculty member, will come today, except Ben Diokno whom I heard is abroad this weekend.

------------

See also:
Weekend fun 23: Economist Jokes, September 24, 2011

Weekend Fun 59, Laglag bala extortion at PH airports, November 06, 2015

Weekend Fun 60, Equality vs. equity, sameness vs. fairness, justice vs. laziness, January 30, 2016 

Weekend fun 61, Math jokes, March 13, 2016

IPR and Innovation 34, When 95% of WHO's EML are off-patent

I am reposting this good article by a good friend, Philip. Enjoy.

MAY 3 — Debates on how to improve healthcare in developing countries often start from the same premise: patents can potentially raise drug prices, so they should be abolished for better public health.

In the early 2000s this argument drove the campaign against patents on HIV drugs in South Africa. This week it is motivating campaigners against the Regional Comprehensive Economic Partnership in Asia — a proposed Free Trade Agreement between 16 Asian countries that may impose new intellectual requirements.

NGO disquiet about drug patents has even led to the creation of a UN High Level panel on access to medicines, due to report its recommendations in New York next month.

Such concerns may in fact be overblown. This is an implication of an interesting new study by researchers at the University of Ottawa and published in April by the World Intellectual Property Organization (WIPO) in Geneva.

To better understand how patents impact access to medicines, the researchers counted how many of the World Health Organisation’s (WHO) List of Essential Medicines are subject to patent protection in developing countries. This list contains 375 or so medicines considered most important by WHO experts.

It’s a hugely influential list, and one based purely on the clinical usefulness of a medicine, not cost or patent status. Developing country governments and large international donors use it to guide which medicines they will procure.

The researchers checked national patent registries in developing countries and double-checked with manufacturers. They found that patents for 95 per cent medicines on the list had expired.

Put simply, patents are not relevant to the vast majority of drugs typically used by physicians in developing countries.

Most of the remaining 5 per cent of medicines — around 20 products — on the WHO list with patent protection are for HIV/AIDS. But patent owners either don’t register or enforce their patents in the poorest countries. For middle-income countries, manufacturers often enter into voluntary licensing deals with generic manufacturers to broaden access, meaning there are cheap generic copies on the international market.

The one medicine with no generic equivalent is the cancer drug, bevacizumab (marketed as Avastin by Swiss patent-owner Roche). This modern so-called ‘biologic’ drug is used against many cancers, and works by starving tumours of their blood supply through blocking a key protein.

Patented or not, these biologic drugs are difficult for generic competitors to copy cheaply.

Unlike most drugs, which are chemically synthesised and made from just a few  molecules, biologic drugs are manufactured in living systems such as plant or animal cells, and have complex molecular structures. Their manufacture demands significant investment and technical know-how, meaning such drugs will never be as cheap as, say, generic aspirin.

One implication of the study is that if patents were abolished tomorrow it would make little difference to the cost or availability of most medicines used in developing countries.

Even so, these medicines are frequently unavailable in public health systems.

In 2014, researchers at the University of Utrecht in the Netherlands found that, on average, essential medicines are available in public sector facilities in developing countries only 40% of the time.

While generic medicines are cheap to make with no royalties to pay, they are still too costly for most people in developing countries.

One example from the WHO list is budesonide, commonly used by asthma sufferers. A single inhaler costs a staggering 50 days wages in Mozambique. In the US, one inhaler costs only US$5 to US$7 (RM20 to RM27) — around 30 minutes work on the median hourly wage.

The reasons behind the expense and scarcity of essential medicines in developing countries are complex, but failures of governance loom large.

Mark-ups along the distribution chain inflate the final price of medicines and include import tariffs, sales taxes, value-added taxes and retailers’ and wholesalers’ margins. In Kenya, mark-ups add 300 per cent to the manufacturer’s price; in Brazil it’s 200 per cent, says IMS, the global healthcare data provider.

Dysfunctional medicine supply chain management is another culprit. A 2015 survey by humanitarian NGO Medecins Sans Frontières reported one in three health facilities in South Africa have shortages of key HIV and tuberculosis drugs. The drugs are imported in sufficient quantities but fail to reach patients due to “local logistical and management problems, ranging from inaccurate forecasting to storage or transport issues”, said MSF.

Governments under-invest in health too. While most European Union countries commit 8 per cent to 11 per cent of GDP to health, few Asian and African countries spend more than 5 per cent: not nearly enough given their enormous health challenges.

These are the major influences on access to medicines. Public health would be best served if the political focus were on these issues, rather than patents.

* Philip Stevens is senior fellow at the Southeast Asia Network for Development (SEANET) and director of Geneva Network, a research organisation focusing on health, intellectual property and trade.

-------------- 

See also:

IPR and Innovation 30, Patents and pharma issues in Asia in 2007, February 07, 2016 

IPR and Innovation 31, Plain packaging and trademark-busting, February 19, 2016
IPR and Innovation 32, On TPP, medicines patent and tobacco trademark, February 29, 2016 

IPR and Innovation 33, More on the panel on property rights, ALF 2016, March 09, 2016

BWorld 50, Adam Smith and Jovito Salonga

* This is my article in BusinessWorld last March 16, 2016.

Adam Smith (1723-1790) was a Scottish philosopher known for his treatise on “invisible hand” welfare effect of the market system. He was the author of two classic works, The Theory of Moral Sentiments (1759) and The Wealth of Nations (1776).

Smith and David Ricardo, along with the earlier thinker John Locke, were considered the “Fathers” of classical liberal philosophy and political economy.

Jovito R. Salonga (1920-2016) was a top-caliber Filipino lawyer, legislator, statesman, and civil society leader. With a string of law degrees (Bachelor, Masters, Doctorate) from the University of the Philippines, Harvard Law School and Yale University, and string of top notch victory in three Senatorial elections (1965, 1971, 1987).

There are some similarities in the ideas and writings of Adam Smith and Senator Salonga, especially on the role and purpose of government.

In the famous work, The Wealth of Nations (1776), Book IV, Chapter IX, Adam Smith argued towards the end that individual freedom in pursuit of personal happiness and advancement should be respected, and government should be lean and minimal, its function is focused or limited to protect such individual freedom from violence (local or foreign) and injustice, and to secure public goods like infrastructures.

In Paragraph 51 of Chapter IX, Smith wrote,

“Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men. The sovereign is completely discharged from a duty, in the attempting to perform which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of the society.

“According to the system of natural liberty, the sovereign has only three duties to attend to; three duties of great importance, indeed, but plain and intelligible to common understandings: first, the duty of protecting the society from violence and invasion of other independent societies; secondly, the duty of protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice; and, thirdly, the duty of erecting and maintaining certain public works and certain public institutions which it can never be for the interest of any individual, or small number of individuals, to erect and maintain...”

In a public lecture at UP Diliman on “Good Government,” July 3, 1962, Sen. Salonga argued that an important function of government is to guarantee a minimum standard of social without sacrificing individual freedom for personal advancement. He wrote,

“(T)he preservation of a minimal standard of order is basic in any organized society; without order, one cannot enjoy the essentials of life with some kind of assurance that someone will not deprive him by force of it. But too much stress on order may mean the dissipation of freedom -- the freedom to pursue our respective occupations, the freedom to trade and engage in business, the freedom to inquire and to know, the freedom to seek truth according to our best lights, the freedom to speak and to worship and to believe. Law, then, in a free society of tree men is a system of reconciliation -- the reconciliation of order with liberty, and it is for this reason that I defined law earlier as a system of ordered liberty, a system where there is security and where individual dignity and worth is recognized.

A Good Government, therefore, seeks to achieve order with freedom, security with human dignity. And at the very least, human dignity means a more equitable distribution of the basic values and goods of society wealth and power, knowledge and respect.”

On the rule of law and not rule of men, the good Senator wrote,

“It is often said that in a democracy the government is one of laws and not of men. The meaning is that the mighty and the weak should be under the law, with equal rights and equal protection. Justice is blind, without regard to whether one is poor or lowly. This is all fine and good, except for the fact that laws are made by men, interpreted by men, and administered by men. And as long as this is so, justice cannot be blind.”

When he retired from politics after he lost in the presidential elections in 1992, Sen. Salonga turned his sights on civil society work. In his Ramon Magsaysay Award Lecture, Aug.30, 2007, he wrote,

“After one term as a congressman and three terms as a senator, I retired from partisan politics in 1992 -- indeed I am no longer an active member of the Liberal Party, since my active involvement in civil society. I founded and organized Kilosbayan in 1993, mainly to arouse public interest and participation in important questions of public policy, in light of the right of the people to their own governance and on the basis of civilized norms of morality, justice, truth and ethics.

“On Recto Day, Feb. 8, 2000, ex-Secretary of Justice and ex-Ambassador Sedfrey A. Ordoñez and I founded and organized Bantay Katarungan, an NGO, to help improve and modernize our system of justice in the Philippines, with the help of young students of idealism and competence from the best law schools in Metro Manila...”

The good senator was known for advancing the rule of law, of having a well-functioning administration of justice, and not for advancing populism and welfarism, entitlement and citizen-dependence on the state. He was the principal author of the Code of Conduct and Ethical Standards for Government Workers, the law defining plunder as a crime, many others.

That makes him a cut above the average or almost all current breed of politicians and legislators, even among many NGOs and civil society leaders.

There are many things, many social measures and actions that can be done by self-reliant citizens and independent civil society organizations and do not need legislation and national coercion. That is the implicit message of the Senator when he and his friends formed KilosBayan (Citizens Action) and Bantay Katarungan (Sentinel of Justice).

Adam Smith has re-ignited the ideals of citizen self-reliance, freedom and responsibility, and limited government focused on securing the rule of law, two and a half centuries ago. Senator Salonga supported those ideals half century ago. Thank you, Sir.

We still have to find that new breed of politicians in the country who can follow the intellectual persuasion and integrity stamina of the Senator. Politicians who are not using political populism and welfarism to bribe voters’ support and instead, highlight the important role of having the rule of law in protecting citizens self-reliance, entrepreneurship and innovation, their private property and their right to liberty and self-expression.

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers, a Fellow of the South East Asia Network for Development (SEANET), and a member of the Economic Freedom Network (EFN) Asia. All three entities support the philosophy of classical liberalism in politics and economics. 

minimalgovernment@gmail.com

--------------

See also:
BWorld 47, Renewable energy and the illusion of merit order effect, March 06, 2016
BWorld 48, On unilateral trade liberalization, March 17, 2016
BWorld 49, John Locke and Jovito Salonga, March 18, 2016

Adam Smith's economic morals, August 28, 2009
Pol. Ideology 46: Misunderstanding Adam Smith, July 14, 2013
Pol. Ideology 48: Hobbes, Locke, Rousseau and Social Contract Theory, September 09, 2013
D.Ricardo, JS Mill, A.Smith and Bong Mendoza on Taxes, BIR vs. Doctors, March 14, 2014
Taxes, The Beatles and Adam Smith, January 26, 2015
Pol. Ideology 61: Raison d 'Etre of Government, January 30, 2015

Pol. Ideology 63, Alternative Economic System

This afternoon, I was one of two reactors to a presentation of a new paper made by the Penuel Group on "Alternative Economic System." The other reactor was Men Sta. Ana of the Action for Economic Reforms (AER).

Good audience, from different Catholic religious groups and NGOs. I thanked Arcy Garcia for the  invite.

The numbered items and in italics are from the paper by the Penuel Group. Then my brief comments plus relevant quotes from various thinkers.

2. “Sovereignty. "The Sovereign agents are the freer beings.  They could exist inside and outside the law.  The sovereign could, at one time, uphold the law, and at another time limit or even suspend it their pleasure.  This description of sovereignty fits the divine; for gods are almost by definition the only ones that could exists inside and outside the law.  Such position is the ultimately seductive. “

Similar to the observation by John Locke: 

"Social contract between people and government, latter  should protect the life and property of the former. Failure to do so is breach of contract. Sovereign people have the right to rebel against abusive "servant.”

Coercion invites rebellion, today or tomorrow. Thus, failure of coercion after sometime.

The Penuel paper somehow failed to present clearly what is the "Alternative economic system" that they propose after discussing at length their critique of the market system. I mentioned four alternative areas.

Concluding Notes

1.Despite all the warts and imperfections of the planet and its people, we are living a world of rising and continuing prosperity. Rising life expectancy, fewer deaths per age bracket compared to past decades.

2. The planet is not ending soon in a collapsing-burning-flooding-submerging scenario. Climate cycle is cool.

3. Free market means free individuals. All markets are composed of individuals, young and old, men and  women, ;rich and poor, producers and consumers.

4. Alternative econ system is one away from big and intrusive government but towards small, minimal government, and maximum civil society of mature, volunteerist individuals.

--------------

The 15-slides presentation is posted in slideshare.

See also: 

Pol. Ideology 59: On PostModern Politics, December 14, 2014 

Pol. Ideology 60: Lecture in Nepal on Liberalism, Rule of Law, Civil Society, January 13, 2015 

Pol. Ideology 61: Raison d 'Etre of Government, January 30, 2015 

Pol. Ideology 62, Marx and Hayek on Property Rights, May 19, 2015

Pol. Ideology 61: Raison d 'Etre of Government

Last Wednesday night, I was a guest lecturer at a friend's graduate class in Ateneo on public finance. I presented 3 unrelated topics but all related to public finance. The first is about the reason for existence of government, why government was invented and what are the scope and functions of government, based on one's political belief. The second paper was about climate money and the corrupted science behind it, and third was about public and private healthcare spending.

About 13 or 14 students came, fine. Alvin was out of the country that day.

If A and E are the extremes, zero and all-government, then where should be the level of involvement of a sensible government?

Adam Smith in his earlier book already cautioned people of not allowing their governments to go to point D or E.

And in his second, more popular book, he reiterated that position.

“Every individual...generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it…. he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”

 –TWN (1776), Book IV Chapter II

The father of "Austrian economics", Mises, elaborated the value of a free market economy. The customer is "king" even if there are no politics involved.

Also among the classical thinkers of "why was government invented", these three philosophers stood out.

Uhh ohh, Plato himself has cautioned against the danger of (big) government and its governors/administrators/rulers.

After WWII, Britain went almost socialist. Meaning almost everything is socialized, including people's pockets and bank savings. Reagan in the US and Thatcher in UK, the pair re-introduced classical liberal philosophy in their governments.

Populism and socialism are deceptive. They promise heaven on earth for the people, especially the poor and/or gullible. Now almost anywhere in the planet, the main complaint of the people are their respective governments. Lots of coercion and prohibitions (yes, things are prohibited unless people get the permits and signatures of regulators first).

There is a need to shrink government. Local, national, multilateral agencies. They have been expanding like amoeba and are devouring lots of resources from the private sector like amoeba.

Takeaway reminders:

Government is not reason; it is not eloquent; it is force. Like fire, it is a dangerous servant and a fearful master. – George Washington

The more numerous the laws, the more corrupt the society. - Tacitus

A government big enough to  give you everything you want is a government big enough to take from you everything you have. -- Gerald Ford. 

The full 15-slides presentation is posted in slideshare.

----------- 

See also: 
Pol. Ideology 55: Jules Maaten's Lecture on Liberalism, May 11, 2014

Pol. Ideology 58: Democracy, Coercion and Civil Society, November 29, 2014 

Pol. Ideology 59: On PostModern Politics, December 14, 2014 

Pol. Ideology 60: Lecture in Nepal on Liberalism, Rule of Law, Civil Society, January 13, 2015

D.Ricardo, JS Mill, A.Smith and Bong Mendoza on Taxes, BIR vs. Doctors

Two good essays here by a friend, Dr. Amado "Bong" Mendoza of the UP Political Science Department. There is a need of course to justify which are the real "public goods" that need continued provision by government and hence, would need continued taxation. There is a growing role for corporate and civil society sectors in providing many public goods that used to be monopolistically provided by governments then. Like quick dispatch of relief goods and food items to victims of calamities like heavy flooding and storm surges. Or residential villages that provide many services to the community, from roads/drainage construction and maintenance, street lighting and security, and they collect annual association dues and various fees -- these serve in effect as taxes and regulatory fees .
----------

Taxation: coercive and consensual

March 06, 2014

In theory, taxation is essentially coercive because taxes are never paid voluntarily. However, taxes are supposedly collected not only for purpose of collecting them but to finance public goods. Thus, consensual taxation is possible since private taxpayers desire public goods (the reason why they left the state of nature in the first place).

In comparing coercive and consensual or negotiated taxation, Michael Moore of the University of Sussex, not the controversial film-maker, argued that the latter constituted a better institutional technology. Coercive taxation (largely in agrarian societies) is relatively ineffective since it tends to generate resistance and because coercive tax collectors were well placed to pocket a large part of the proceeds for themselves. In contrast, consensual taxation offers (within the boundaries of individual states) joint gains for both rulers and taxpayers.

In the late 18th century, the idea that citizens must contribute to the upkeep of a state was developed.  On of the political economists of the time, Adam Smith forwarded four maxims of taxation (equity, certainty, convenience, and efficiency).  These maxim were also supported subsequently by David Ricardo and John Stuart Mill:

1. “The subjects of every state ought to contribute to the support of the government, as nearly as possible in proportion to their respective abilities: that is, in proportion to the revenue which they respectively enjoy under the protection of the state. In the observation or neglect of this maxim consists what is called the equality or inequality of taxation.

2. “The tax which each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner of payment, the quantity to be paid, ought all to be clear and plain to the contributor, and to every other person. Where it is otherwise, every person subject to the tax is put more or less in the power of the tax-gatherer, who can either aggravate the tax upon any obnoxious contributor, or extort, by the terror of such aggravation, some present or perquisite to himself. The uncertainty of taxation encourages the insolence and favours the corruption of an order of men who are naturally unpopular, even when they are neither insolent nor corrupt. The certainty of what each individual ought to pay is, in taxation, a matter of so great importance, that a very considerable degree of inequality, it appears, I believe, from the experience of all nations, is not near so great an evil, as a very small degree of uncertainty.

3. “Every tax ought to be levied at the time, or in the manner, in which it is most likely to be convenient for the contributor to pay it. A tax upon the rent of land or of houses, payable at the same term at which such rents are usually paid, is levied at a time when it is most likely to be convenient for the contributor to pay; or when he is most likely to have wherewithal to pay. Taxes upon such consumable goods as are articles of luxury are all finally paid by the consumer, and generally in a manner that is very convenient to him. He pays them by little and little, as he has occasion to buy the goods. As he is at liberty, too, either to buy or not to buy, as he pleases, it must be his own fault if he ever suffers any considerable inconvenience from such taxes.

4. “Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible over and above what it brings into the public treasury of the state. A tax may either take out or keep out of the pockets of the people a great deal more than it brings into the public treasury, in the four following ways. First, the levying of it may require a great number of officers, whose salaries may eat up the greater part of the produce of the tax, and whose perquisites may impose another additional tax upon the people.” Secondly, it may divert a portion of the labour and capital of the community from a more to a less productive employment. “Thirdly, by the forfeitures and other penalties which those unfortunate individuals incur who attempt unsuccessfully to evade the tax, it may frequently ruin them, and thereby put an end to the benefit which the community might have derived from the employment of their capitals. An injudicious tax offers a great temptation to smuggling.

Fourthly, by subjecting the people to the frequent visits and the odious examination of the tax-gatherers, it may expose them to much unnecessary trouble, vexation, and oppression:” to which may be added, that the restrictive regulations to which trades and manufactures are often subjected to prevent evasion of a tax, are not only in themselves troublesome and expensive, but often oppose insuperable obstacles to making improvements in the processes.

To Adam Smith’s mind, bad governance is excessive taxation of capital and property. Not taxation per se, as he recognized the need for public goods and the role of the state in the provision of such goods. Bad governance discourages investment and owners of transportable assets can readily change domiciles to jurisdictions with acceptable tax burdens. Smith argued that a tax burden is acceptable to businessmen if the state is able to provide an equally acceptable bundle of public goods.

----------

The limits of public shaming

March 13, 2014

The controversy generated by BIR Commissioner Kim Henares' shaming indictment of an entire profession reminds me of these words I wrote earlier.

Taxes, The Beatles and Adam Smith

A friend, Dr. Amado “Bong” Mendoza of the UP Political Science Department, posted his poem in his fb wall today….

Taxing to death
A septon on political economy

Taxation is the purest of political games
The process determines
Who gets what, where, and when

Smith (Adam, that is) warned
If taxes were onerous
Mobile capital can frustrate the avaricious prince

Taxes are as sure as death
Lennon and McCartney crooned
Dead men should declare the pennies in their eyes.

© 2014 All rights reserved

--------------

I like it, so I added a stanza from The Beatles’ song, “Taxman”,

Let me tell you how it will be
Just one for you nineteen for me
Cause I'm the taxman, yeah I'm the taxman…
And you're working for no one, but me.

On top of taxes (from income tax to death/inheritance tax), there are also "non-tax revenues" aka mandatory fees. They come from cradle to grave: birth certificate fee (at city hall LCR or NSO), marriage certificate fee (NSO), death certificate fee. In between, there are passport fee, driver's license fee, terminal fee, NBI clearance fee,...

And on top of taxes and fees...mandatory or forced contributions: SSS, PhilHealth, PagIBIG. The first two are rising starting this month.

And on top of taxes, fees, mandatory contributions, there are royalties for certain industries and companies, mostly in energy, mining, quarrying sectors.

To a large extent, government mainly exists for itself, an end in itself. Provision of certain services are just gravy and alibi to justify those taxes, fees, forced contributions, royalties. Many people are retreating to self-contained villages and condos where peace and order, garbage collection, roads/drainage construction and maintenance, street lighting, education, healthcare, parks and mini forest, etc. are ALL private provided. And they pay big amount to enjoy those privately-provided services. And still, they pay taxes, fees, etc. to the government even if they hardly use or benefit from those.

Lennon-McCartney in their younger years could be libertarians. They disliked high/big taxes and hence, big government. They disliked revolution, violence, central planning, and advocate more personal responsibility. From the song Revolution: 

You say you'll change the constitution

Well, you know,

We all want to change your head.

You tell me it's the institution

Well, you know,

 You better free you mind instead...

There is a continuing debate between libertarian anarchists (zero government advocacy) and libertarian minarchists (limited, minimal government). I belong to the latter. The former want zero taxes, zero fees, etc.; the latter recognize the need for some taxes to finance limited government functions like ensuring the rule of law, justice administration, limited infra. (most infra can be done by the private sector via tollroads). Classical social contract thinkers Thomas Hobbes, John Locke, Jean Jacques Rousseau, believed that the “social contract” was limited to rule of law function of government, in justice administration. They did not or hardly mentione about infrastructures as core government function.

Adam Smith believed in limited government too. He wrote,

According to the system of natural liberty, the sovereign has only three duties to attend to, three duties of great importance, indeed, but plain and intelligible to common understandings:

first the duty of protecting the society from violence and invasion of other independent states;

secondly, the duty of protecting…every member of society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice;

and thirdly, the duty of erecting and maintaining certain public works and certain public infrastructure which it can never be in the interest of any individual or small number of individuals to erect and maintain.

-- The Wealth of Nations, IV.ix.51.

If a particular government will follow Adam Smith's three main functions of government, there would be only two branches of government needed: Executive and Judiciary. The Executive will be composed of (a) Office of the President or Prime Minister, (b) Foreign Affairs, (c) National Defense, (d) Interior and Police, (e) Public Works, (f) Health, (g) Edcation, and (i) Finance and Taxmen.

(b) and (c) will do function 1, protect society from violence and invasion of other states.
(d) and the Judiciary will do function 2, ensure the rule of law and justice administration; and
(e) will do function 3, erecting and maintaining public works and hard infrastructures,

(f) and (g) will also do function 3 for “soft” infra; limited to infectious diseases, people with physical and mental problems,

(a) will monitor and supervise the implementation of the 3 functions, and

(i) will collect the money for all of the above.

I can support this limited or minimal government. 

---------

See also: 

Pol. Ideology 18: John Lennon and Liberty, Purpose of the Law, December 15, 2010 

Liberty Rock 1: 50 Years of The Beatles, June 05, 2012 

Pol. Ideology 46: Misunderstanding Adam Smith, July 14, 2013

Pol. Ideology 48: Hobbes, Locke, Rousseau and Social Contract Theory

A friend, one of the few real political science academics who can dabble in political theory and discuss things in their facebook walls or blogs, Amado “Bong” Mendoza  (http://bongmendoza.wordpress.com/) of the UP Pol. Science Department, posted the following in his facebook wall yesterday.

I like Bong's discussions about these three classical thinkers of the social contract theory, so I am reposting them here. "Social contract" is an agreement, explicit or implicit, between citizens and the State and how freedom and power are to be divided and implemented between them. I made a few comments to Bong's discussions. I added the years of those three classical thinkers plus Adam Smith. Photos (top, Hobbes and Locke; bottom, Rousseau and Smith) are from wiki.

---------

1. Thomas Hobbes (1588-1679). In the beginning, there was no state or public authority. Since there was no state, there was no law. Since there is no law, nothing is right or wrong. Everyone is free to do as she pleases. 

Consequently, life was nasty, short and brutish. Civilization was not possible in this so-called state of nature. However, since human beings were rational, they agreed to leave this world of delusion, of fake freedom and submit to the Leviathan's authority.

The implied social bargain is that submission to authority will result in a life so much better than that in the state of nature.

How is this discussion connected to the current abuse of public money by the Philippines' political class and its minions? One can argue that the rape of the public treasury sends us back to the barbaric state of nature.

2. John Locke (1632-1704) saw the social bargain to get out of the state of nature as one between each and every person who becomes a citizen of political society.

The people are the ultimate sovereign and government is its public servant.

There is a separate contract between the people and government. As public servant, the government is contractually obligated to protect the life and property of its citizens.

Failure to do so is a simple breach of contract.

However, if government itself (or key officers of government) actively defrauds its citizens of their lives (extra-judicial killings) and their property (plunder of the public treasury), this act is high treason.

Papa John warned that the sovereign people have the right to rebel against a grossly abusive "servant."

3. Jean Jacques Rousseau (1712-1778). Of the three social contract philosophers, Rousseau is the most controversial and less straightforward. He talked about people being "forced to be free" since they apparently do not know what's best for them.

And yet Papa Jean was concerned with, like other political philosophers, ensuring the freedom of the individual was compatible with the authority of the state.

The growth of human population has led to increased human interaction and interdependence. Beginning with his solitary noble savage, Papa Jean saw the emergence of inter-dependent societies that required ordering by political authority.

The noble savage is undoubtedly free. The status of the individual in inter-dependent communities is unclear. Papa Jean suggested that the latter have actually degenerated into class-divided societies where the rich impose unfreedom on the poor.

Rousseau is clearly dissatisfied with this set of affairs. He argues that the key to the reconciliation of individual freedom with state authority is the idea of the general will: the collective will of the citizenry taken as a whole. The general will is basis of law and is willed by one and all. In following the law, each citizen follows his own will and is thus free.

All of the discussion above may be Greek to us but Papa Jean made some practical points. He was not in favor of political parties because they represent narrow particular wills. He was also not in favor of representative democracy or government. In the determination of the general will, each citizen must directly manifest his preferences without being filtered by a representative.

Papa Jean was in favor of direct democracies which must be of necessity small in scope.

Will there be a need for pork barrel allocations in Papa Jean's direct democracies?

If so, what are the chances that they will be plundered?

--------

The following are my comments to Bong’s postings and his reply:

On #1, Hobbes:

Pol. Ideology 46: Misunderstanding Adam Smith

Last Monday, July 08, I posted Pol. Ideology 45: Left Intellectualism Means Abandonment of Socialism in my facebook wall. It attracted another round of long discourse. Thanks to fellow UP ETCer (younger batch) Mel, Mike, Shakaru, for that long exchange from July 08-10, 2013.

While the debate still focuses on whether we should have a BIG or small/limited government, one source of confusion is a misunderstanding of some quotes from  Adam Smith’s book, The Wealth of Nations.

This is 12 pages long, 6,100+ words, so grab a can of your favorite drinks and enjoy.

Mel Lorenzo Accad Interesting sir! I'm reading it

 cc: Sir Gerry, May I know your comment on this? 

Sir Nonoy, how sure are you that you have defined socialism accurately? as pointed out by sir Gerry in one of my previous posts. What are your sources po para naman maiwasan natin ang strawman arguments. 

Nonoy Oplas It's there. "Things should be socialized always -- education, healthcare, housing, pension, transpo, agri, etc. Including your own pockets, savings, they should be socialized. Diversity and inequality, spontaneity and innovation, should be restricted if not controlled whenever possible. Things should be harmonized, standardized, uniformized, monotonized, in order to prevent inequality, massive and scary inequality."

Mel Lorenzo Accad Sir Nonoy, here are my comments (I also posted them in the main blog):

"Let me be clear with my assumptions:
1. Every political rule is a "dictatorship" in one way or another.
-Example, democracy is dictatorship of the majority over the minority, capitalism is dictatorship of those who are economically-abled over those who are not economically-abled, socialism is the dictatorship of the "people" over all (I really hope that I defined them very well so as to avoid strawman arguments. I hate strawman arguments, BTW)

2. So if we say that socialism is machine that creates dictatorship, what then can we call capitalism?

3. I believe that capitalism and socialism have advantages and disadvantages (we should only be aware of their SIDE EFFECTS and how do we minimize them).

4. Capitalism has created so wide inequality to the extent that everyone has differing in their competitiveness, hence there's a long run possibility of rise of monopolies (even those that are not natural monopoly due to technological advantages).

5. Final question, what then are these side effects of every political rules that we should be aware of? How should we minimize them? WHAT IS OUR COMMON GOAL AT THE END OF THE DAY?

6. I don't have the monopoly of truth. There are grave consequences of assuming that we have monopoly of truth.

(COOL HEADS, WARM HEARTS)"

Nonoy Oplas Thanks Mel. First of all, I think you should start blogging. Just copy-paste those that you already posted in fb, they are long blog articles already.

To your points:
1. Yes, All forms of pol rule is dictatorship and coercion. The free market philosophy, the minarchy libertarin especially does not rule out lhaving coercion in our lives, hence the advocacy for "limited government" vs the "zero government" position of libertarian anarchy.

2. Free market capitalism is based on voluntary exchange. I sell you tomatoes at this price. If you like them, you pay and go home. If you don't like them, you just walk away and find another seller. Then I go to another buyer and offer my tomatoes. Zero coercion in a voluntary exchange set up.

3. Yes they do. It depends on what you wish to achieve. If you want to respect diversity and spontaneity, free market capitalism is the way because under capitalism, diversity is not allowed. YOu cannot be very efficient then be very rich, the state will confiscate your extra income, your extra cash, your extra car, extra land.

4. Free people are not equal, and equal people are not free. There is no limit to what the super-efficient, super-hard working, super-ambitious people can achieve. Meanwhile, some people have zero ambition, just have a party as often as possible, get subsidies from siblings or from the state. As time passes by, the inequality between these two extremes widen. Some in the middle class join the super rich later. Inequality is necessary if you want a free society.

5. Common goal at the end of the day is -- individual liberty. Individual responsibility. One's stupidity and irresponsibility should not be blamed to anyone else. One's efficiency and fruits of hard work should not be confiscated to be given to everyone else.

6. The only absolute truth in this life are change, death and government/taxes.