Friday, October 21, 2011

Murray Rothbard on the 'Consumption Tax'

As I promised on the 'Peter Schiff Show', here is Murray Rothbard explaining why a consumption tax ends up being paid by wage earners and land owners:

Having challenged the merits of the goal of taxing only consumption and freeing savings from taxation, we now proceed to deny the very possibility of achieving that goal, i.e., we maintain that a consumption tax will devolve, willy-nilly, into a tax on income and therefore on savings as well. In short, that even if, for the sake of argument, we should want to tax only consumption and not income, we should not be able to do so.... the sales tax is subject to an extra complication: the general assumption that a sales tax can be readily shifted forward to the consumer is totally fallacious. In fact, the sales tax cannot be shifted forward at all!...In the long run, of course, and that run is not very long, the retail firms will not be able to absorb a sales tax; they are not unlimited pools of wealth ready to be confiscated. As the retail firms suffer losses, their demand curves for all intermediate goods, and then for all factors of production, will shift sharply downward, and these declines in demand schedules will be rapidly transmitted to all the ultimate factors of production: labor, land, and interest income. And since all firms tend to earn a uniform interest return determined by social time preference, the incidence of the fall in demand curves will rest rather quickly on the two ultimate factors of production: land and labor.

Hence, the seemingly common-sense view that a retail sales tax will readily be shifted forward to the consumer is totally incorrect. In contrast, the initial impact of the tax will be on the net incomes of retail firms. Their severe losses will lead to a rapid downward shift in demand curves, backward to land and labor, i.e., to wage rates and ground rents. Hence, instead of the retail sales tax being quickly and painlessly shifted forward, it will, in a longer-run, be painfully shifted backward to the incomes of labor and landowners. Once again, an alleged tax on consumption, has been transmuted by the processes of the market into a tax on incomes.

The full Rothbard take on taxes is here.


  1. Hmm, I wonder if Rothbard's article on today's 'Mises Daily' has anything to do with you? Nah, couldn't be.

    In either case, I think that its pretty clear which side of the debate that stands on.

  2. Fetz,

    The problem with you, Wenzel, and is that you are the Paul Krugman's of Austrian Economics. Theoretical models DO NOT work in the real world. I'm sure it looks good on paper, and sounds good when you say it, but the world does not work that way. Schiff knows how the world works because he actually RUNS A BUSINESS. He knows because he has real world experience, not because Rothbard said it years ago.

  3. @Anon 12:42

    Bwaaaaaahahahaha! Thanks for the comic relief.

  4. @anon - please point me to any model that has been propounded by Wenzel, or Joseph Fetz

    seriously, what on earth are you talking about?

  5. @ Anon, Wenzel has RUN A BUSINESS. By your standards we should just listen to businessmen when it comes to economic matters. So I guess Herman Cain and Romney are our best choices because they have run a business and so therefore they know how the world works. What gibberish. Such a weak defense of Peter schiff. I normally agree with Schiff and thinks he does a lot of good but he is wrong on this issue as Wenzel has shown throughout these posts.

  6. @ Anonymous (October 21, 2011 12:42 PM)

    Jesus, do you even have a clue?

    This debate is about TAXATION. Taxation has nothing to do with "how to run a business", it has to do with how to run the government: a parasitical monopoly of violence.

    You think knowing how much private property to take from productive citizens at the point of a gun has one iota to do with how you succesfully run a business?

    Why don't you be more obvious in your trollishness?

  7. You're welcome Cletus III....i'm sure you're making Cletus I & Cletus II very proud.

  8. "Theoretical models DO NOT work in the real world"

    Considering that that statement pretty much sums up the Austrian position, the rest of your argument is kind of silly. Are you sure that you aren't confusing Austrians with the Neo-classicals?

    I am pretty sure that EVERYBODY has real-world experience whether they are an entrepreneur, a capitalist, a wage-earner, etc. While experience can definitely help an individual to gain certain insights into economics, I don't feel that this is always true merely by virtue of their position. There are plenty of super-successful businessmen that couldn't tell you the first thing about economics, just as a child can often have profound economic insights.

    To me, the businessman argument is kind of like saying that because a certain sports player is awesome at scoring points, this means that he'll be an awesome coach.

  9. Really, businesses don't get taxed? Productive citizens don't run businesses?

    I realize you all have to blindly support Wenzel because you read his website, but you can do better than that.

  10. There is a reason Albert Pujols gets paid more than Tony LaRussa.....

  11. "There is a reason Albert Pujols gets paid more than Tony LaRussa....."

    Of course, Pujols DMVP is higher than LaRussa's.

  12. @anon 1:40pm

    Your whole argument has been that we use theoretical models, we don't. Perhaps you should read HA or MES.

    You say Schiff knows what he is talking about because he runs a business. So have a lot of Austrians that disagree with Schiff on this topic. This argument is just weak considering based on your logic Romney and Cain know what they are talking about because they have run a business.

    You also equate this "real world experience" as being better than reading what Rothbard wrote in the past. Yeah, what a dolt you would have to be to take Rothbard over Schiff when it comes to economics.

    It appears you are the one blindly following Schiff on this. I'm sure most of us would support Schiff on most occasions but we part ways on this issue. Hell, I donated to his campaign but I don't follow everything he says. I like both Schiff and Wenzel but when they disagree I can't support both. I believe Wenzel is on the right side of this issue. Sorry if that hurts our delicate sensibilities by not supporting your homie.

  13. Anonymous (October 21, 2011 1:40 PM )

    You really don't get it, do you?

    Schiff is a business man who *favors* a certain tax (thinking a certain tax is a good idea) as opposed to Wenzel who favor NO tax (or at least a less harmful one than Cain's).

    For you to claim that Schiff's experience running a business makes his propagating a certain tax logically more correct than someone propagating no tax, is like saying that a store-owner propagating that a kneecap instead of a neck be broken by mob thugs, knows more what he's talking about than any random guy who says that breaking ANY bones is wrong PERIOD. Being a store-owner does not make such a store-owner an expert on what are the best mafia extortion tactics to be applied on everyone, even if he didn't mind them being used against himself.

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