The Optimal Tariff & Laissez Faire

Tariffs are suddenly respectable again across a wide swath of the Right. Are they essentially at odds with free markets, ergo with prosperity, as others on the Right insist? Can a nation prosper that imposes them?

If perfect market freedom consists in a complete absence of political influence upon economic activity, then no market can be free. So it can’t consist in that. What then can we properly mean by perfect market freedom? This is to ask what it is in markets that needs to be free, in order for them to work right – i.e., both to work well, to function smoothly, and also to operate so as to generate true good, true righteousness and value. There is after all no reason to prefer market freedom unless it actually fosters human flourishing understood from the most comprehensive, sapient and charitable perspective – this being what is captured in the notion of righteousness in economic operations – i.e., in work.

It seems clear that freedom of contract is the sort that matters to rational and efficient economic activity that can foster prosperity along any moral dimension. Where agreements can be negotiated between counterparties under no coercion of any sort, so that the prices thereof are not at all deformed vis-à-vis the prices of other, alternative agreements (taking recusal from any agreements at all – stepping away from the market altogether – as a species of agreement, an effectual agreement to disagree), then no deal can consummate except under the condition that it appears to both parties to benefit both of them at the negotiated price, and taking into account all the relevant costs.

Taxes and tariffs are among those relevant costs. So long as they do not favor one sort of party over another, or one sort of deal over another, they do not deform the prices of one sort of deal over those of other sorts. So long, that is, as they are levied equally on all sorts of transactions, they will not frustrate the consummation of any deals that can reap benefits. They will neither frustrate nor derange economic acts by means of artificial trammels binding any one sort of such acts. They will leave agents at liberty to undertake such agreements as seem to them advisable. All the deals worth doing will then be done, and the optimum of economic value realized across the whole economy.

What’s wanted then from a prudent, sagacious sovereign are optimal level tariffs, tonlieux and taxes on all transactions, regardless of what is exchanged (“optimality” is discovered by increasing a levy until the revenues it generates stop increasing). This is the opposite of industrial policy, or centralized command and control. A flat optimal tariff across the board on all imports does not care what is imported, or how much, but rather only that whatever is imported should pay the market price of entry. It is compatible with the sort of freedom that is important to the right working of markets – with laissez faire et laissez passer.

Government is of course nothing at all if it is not command and control of some sort: the basic act of the state (or any sponsor of a market) is to set rules of social and economic interaction, and keep them, and penalize their infractions. This is how markets – or any of the various organs of society, for that matter – are instituted to begin with, and maintained. No rules, no game: if you want a market that can iterate, remember (score, account, bank), so learn, and thus integrate intelligence supraindividually, you need constraints on behavior. So some command and control is inevitable: whether or not it is formally instituted, there is always a government. This is to say no more than that men always and everywhere try to coordinate their acts.

But if you want government control of certain sorts of acts – murder for hire, say, or fraud – as you most certainly do, then taxes are a lousy way to get it. State levies should be aimed solely at raising revenues, not at controlling behavior. Government of behavior is the function of law, of the judiciary, and of punishment.

NB that taxes on income, capital gains, estates, or property are suboptimal. They are not levies upon transactions, but upon the fruit of prior transactions in the realization of goods in and for lives. By reducing the goods that acts can realize, they penalize such acts, and therefore the realization of such goods. There are then fewer transactions, less value generated, less prosperity, and so on.

Levies such as tolls, tonlieux, tariffs, and transaction taxes on the other hand are added to the costs of exchanges symmetrically for both parties as a direct function of the strike price, rather than of the profit each party enjoys from the deal. They do not therefore reduce the relative benefits of this or that particular exchange to this or that party. Like the sunshine, they fall with equal force on every unit of value that changes hands on the market.

They are therefore naturally progressive; are progressive without intending to be. The greater your wealth, and thus the larger the general size of your transactions, the more of the sovereign’s revenues you are going to pay, as compared with the poor, who transact in smaller amounts. Each wealthy man is going to pay far more on average for the cost of the state than a poor man.

Transaction levies should be understood as prices of permits to participate in markets. In selling such permits, the sovereign is selling all the benefits of doing business in the market he maintains and protects and polices. An orderly, prosperous, and safe market should cost a lot more to enter than chaotic, lawless and, therefore, impoverished markets, because the former sort of market imposes far less risk on its participants than the latter. Less risky markets are more valuable.

Can a sovereign reap tremendous rents from his rule over a market? Yes indeed; and the more sagacious his rule, the greater his rents, ceteris paribus. Is this bad? No. We want it to be possible to get rich from engaging in the business of truly good government. A virtuous man who has by his excellence got wealth does not in any case usually destroy it; he either invests it or consumes it, prudently; either way it flows back into the economy from his fisc. This holds even for the magnificent extravagances of public consumption often sponsored by great chieftains or their fellow oligarchs: athletic or dramatic events, massive sacrifices and gorgeous religious rites, vast museums and temples, richly endowed libraries and universities, potlatch, great parties and feasts, festivals, holidays, parades and celebrations – these too all contribute to social weal, to harmonious coordination, and aye to creativity and research.

Nor are any sovereign’s powers or privileges boundless. He is in business like everyone else. His business – one of them, anyway – is making an attractive market and selling access thereto. So willy nilly must he compete with other sovereigns who sponsor markets of their own – and who might someday, if they rule more sagaciously than he, mount a hostile takeover of his. Thanks to his competitors, the sovereign cannot for long charge more for access to his market than the market for such access will bear without driving away profitable business – profitable to him, to his customers, and to his subjects. But nor will he want to charge less, for that would make his domains, his market, his subjects and his fisc a commons vulnerable to exploitation. If you sell access to your market for less than it is worth, you effectually subsidize imports and penalize your subjects, reducing your revenues.

All these economic pressures are at work today upon the sovereign and his subjects. But they operate disguised by mendacious terms that, as representing that such pressures do not exist and that the sovereign acts with complete Apollonian disinterest in anything but the commonwealth (or even that there is no sovereign), so confuse us all, and make the whole economic process dishonest, ergo noisy, cumbersome and inefficient. Nominal tariffs may now be low, but we can be sure that someone in the system that sets them that way is profiting handsomely thereat. There is the nominal price of access to a market, and then there is the true, the optimal price. Where these differ, someone is pocketing that difference, under the table.

And someone – the consumer, as always – is paying it somehow. There is no free lunch. But then also, and by just the same token, no lunches go uneaten. There is conservation of value, so all transactions without exception somehow balance. Then if we ourselves are not eating the lunch we paid for, someone else somewhere else is.

When the business of sovereignty is openly and publicly recognized as the business of the sovereign, and admitted as proper, all sorts of things become clear that are otherwise opaque, and all manner of conflicts of interest are resolved – either eliminated altogether, or harmonized to congruence. When law is true to life, the niches of corruption vanish. When law lies about the true state of affairs and the true values of goods, corruption blossoms.

[Has there been ever any nation in any age where law was as false, as risibly absurd, as in our own today? Did even the Soviets come close to the insanity of our laws? Sure, they cooked all their books, and lied about everything they were doing to the Russians; but at least they stoutly maintained that men were men, and women women.]

The sagacious sovereign is not the enemy of his people, but their chief and palmary exemplar, their partner, father, familiar, cousin, friend. When they do well, he does, and vice versa (in this lies the material cause of the loyalty and mutual enjoyment that binds them all together as one people). So he wants you to transact in his domains. He wants sales. So will he manufacture the best market he can – orderly, secure, just, prosperous – and price it optimally. So doing, he will optimize not just his own revenues, but the welfare of his people. Indeed, it is in virtue of the latter that he will enjoy the former. So will he do all he can to govern well and rightly: to constrain wickedness within strict bonds and promote righteousness on the one hand, and on the other to let true goods flow freely according to the freely applied deliberative intelligence of his subjects.

Not only then is the level optimal sovereign levy on transactions compatible with laissez faire, with prosperity, and with general virtue: it may be an indispensable aspect of their most favorable milieu.

2 thoughts on “The Optimal Tariff & Laissez Faire

  1. Pingback: The Very Best of Last Week in Reaction (2016/06/12) – The Reactivity Place

  2. Pingback: Owned Government – The Orthosphere


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