Tuesday, November 27, 2012

What Ludwig von Mises Taught Gottfried Haberler Who Taught Paul Samuelson about Tax Loopholes

By Joseph Salerno

Tax loopholes are universally denounced across the political spectrum.  Democrats revile them as egregious giveaways to the “rich” that should all be tightly sealed up  in the interests of “revenue enhancement”  for deficit reduction,  infrastructure investment, propping up collapsing entitlement programs, etc.    Republicans condemn them as major barriers to the implementation of a more business- and investor-friendly flat tax.  Even free market economists oppose tax loopholes as inefficient and “non-neutral” to the market economy’s allocation of resources–as if there existed an optimal pattern of coercive redistribution of income from productive, private  taxpayers to parasitic, political tax-consumers  that was neutral to the market.
Needless to say Ludwig von Mises, who never took his eye off of  the larger politico-economic issue of capitalism versus socialism,  freedom versus statism, did not share the modern aversion to tax loopholes founded on baseless economistic concerns about “effiiciency” and “tax neutrality.”   He pithily summarized  the case in favor of tax loopholes, according to the  following  anecdote related by  Paul Samuelson (“Tribute to Gottfried  Haberler for American Enterprise Institute Memorial 18 September 1995″) :
Some of us at sherry before a Fiscal Policy dinner in the Harvard Faculty Club were beefing about certain tax loopholes in the IRS code.  Gotttfried [Haberler] whispered quietly, “Capitalism breathes through those loopholes.”  The next day  I told him how much I had liked his aphorism.  Always the straight-arrow scholar, he said, “Yes, but the words are those of Ludwig von Mises not Gottfried Haberler."
Note the above was originally posted by Salerno at The Circle Bastiat.


  1. A search for other references to this quote shows:

    "An economy breathes through its tax loopholes."

    -Barry Bracewell-Milnes "Tax Avoidance can be Good News for the Tax Collector'. Daily Telegraph, 16 July 1979

    According to the LvMI Bracewell-Milnes is a "[Scholar] Working in the Austrian Tradition" so he certainly was familiar with LvM though I don't know that they met.

  2. Seems that slowly but surely people are starting to get it, and with that they are starting to understand what it is that is actually wrong with the economy itself.

  3. Love it. I am definitely remembering this line.

  4. This talk of eliminating the deduction for mortgage interest brings up an interesting point. Taxes will be going up, no doubt. I don't own a home and don't use this deduction. What is the libertarian viewpoint? Financially it is better if someone else pay higher taxes than if I pay them. That said, I can see no moral reasons I can give in supporting the elimination of this deduction. Possibly, politics is such a cesspool moral actions are sometimes impossible.