Thoughts on economics and liberty

Was Adam Smith a socialist? #2 – the issue of inheritance tax

Following on from my post here, let’s examine the claim that according to Adam Smith, “inheritance laws SHOULD partition fortunes”.

Before saying anything else, let me note that it is good that at least some people think that Adam Smith’s writings are useful. The fact that socialists cite Adam Smith in THEIR favour is a sign that they are at least somewhat willing to learn something new.

For these same people should know by now that the liberals do NOT have a Bible (unlike the socialists with their Communist Manifesto). Adam Smith is NOT considered the final word in economics (else why would there be a need for thousands of books on economics after Smith?). Smith is considered one of the early thinkers.

And as with all early thinkers in any aspect of human knowledge, the early thinkers made a LOT of mistakes. Adam Smith’s work is replete with mistakes. The bigger mistakes of Adam Smith (labour theory of value, for instance) were used by “economists” like Marx to create a mammoth edifice of mistakes.

But Adam Smith is important to the liberal because he was right on MOST things. That’s saying a lot for someone who lived 250 years ago. Now, if only these socialists would actually read and understand Smith, they would be well on their way to understanding FURTHER advances in economics and finally they might actually become educated. Which would be a wonderful thing.

Now back to this claim about Smith and the inheritance tax.


This is what he actually wrote:

The death of a father, to such of his children as live in the same house with him, is seldom attended with any increase, and frequently with a considerable diminution of revenue, by the loss of his industry, of his office, or of some life-rent estate of which he may have been in possession.

That tax would be cruel and oppressive which aggravated their loss by taking from them any part of his succession. It may, however, sometimes be otherwise with those children who, in the language of the Roman law, are said to be emancipated; in that of the Scotch law, to be forisfamiliated; that is, who have received their portion, have got families of their own, and are supported by funds separate and independent of those of their father. Whatever part of his succession might come to such children would be a real addition to their fortune, and might therefore, perhaps, without more inconveniency than what attends all duties of this kind, be liable to some tax.

Now, Smith was a very primitive thinker on matters of public finance. Liberalism is, in any event, not so much about public finance as it is about productivity.

Smith has been challenged on a number of issues with regard to his views on taxation. I broadly support his insights even into public finance, but clearly he missed out a critical consideration while discussing the inheritance tax, above.

He missed out the fundamental issue of double taxation – that this inheritance has ALREADY been taxed for provision of public goods. He also missed out the even more fundamental principle of the continuity of human families and the power of DNA.

Regardless, even if we assume that his analysis was ill-informed, we can see that nowhere is he REQUIRING the imposition of inheritance tax. All he is saying is that in the case where children are grown up adults in their own right, the state might, PERHAPS, impose SOME inheritance tax.

A very tentative exploration of the matter.

I deduce that it would be inappropriate to take this error of Smith’s analysis to lump him along with socialist fanatics like Marx and Piketty.

But once again – to the socialists reading this post – do ACTUALLY try to read Smith. Once you’ve done that you’ll be ready for much more, and finally, one day, you might even be ready to understand the economy.

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Sanjeev Sabhlok

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