Smith’s parsimony logic forced him to reject taxing the rich, leaving only debt

Evidence

It sits well if you start with the observation that “the whole consumption of the inferior ranks of people … is in every country much greater … than that of the middling … and above … rank.” Therefore, taxing anything except luxuries “would fall altogether upon the superior ranks of people,” which would diminish their parsimony, and thus lower growth. But there is no way that a consumption tax on nonessentials will suffice to fund a state of the size envisaged by Smith. How, then, can goverment be funded? The answer is government debt, and Smith doesn’t like that answer. — Mark Blyth, Austerity, 301

Categorization

• DEFINE: Explains the internal contradiction in Smith: protecting the rich’s saving instinct forecloses progressive taxation and traps the state into borrowing.
• XREF: connects to: Smith converted government debt from an economic problem into a moral one — Mark Blyth, Austerity: The History of a Dangerous…, 304

Broader Connections

• Smith converted government debt from an economic problem into a moral one #expands (0.78) — Mark Blyth, Austerity, 304