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Monday, August 30, 2004

Thank you David Ricardo

The current issue (Adobe version) of the Dallas Fed's Economic Insights is a piece on David Ricardo. I love reading the old guys (Ricardo, Cournot, Smith, and Mill) because their words are as true today as they were two hundred years ago.

As Arlington contemplates increasing taxes (which are supposed to be paid by non-Arlingtonians) and the nation contemplates John Kerry's proposed tax increases (which are supposed to be paid by the rich, who after all can afford higher taxes and don't need a tax cut), it is always nice to find appropriate words written by one of the masters. Non-economists might scoff at the idea that what was true two hundred years ago would be true today, after all isn't our economy is vastly different.

In reality, our economy is only slightly different than the economies of the eighteenth and nineteenth centuries. While we have new and different inputs and outputs, these are only a matter of degree and often do not qualitatively change the veracity of statements made by some of the greatest economists of the past.

From Ricardo's On the Principles of Political Economy and Taxation:
Taxes are not necessarily taxes on capital because they are laid on capital; nor on income because they are laid on income. The desire which every man has to keep his station in life, and to maintain his wealth at the height which it has once attained, occasions most taxes, whether laid on capital or on income, to be paid from income; and therefore as taxation proceeds, or as government increases its expenditure, the annual enjoyments of the people must be diminished, unless they are enabled proportionally to increase their capitals and income. It should be the policy of governments to encourage a disposition to do this in the people, and never to lay such taxes as will inevitably fall on capital; since by so doing, they impair the funds for the maintenance of labour, and thereby diminish the future production of the country.
Think about these statements and their relationship to today's tax environment and you gain a reappreciation for David Ricardo.

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