Debunking Economic Mythology

"Taxing the rich" is an exercise in self harm

When on holiday in New York and Philadelphia recently, we were struck by the

innumerable public benefits that wealthy foundations, trusts, charities and

bequests have bestowed upon cities hungry for cultural enrichment. I realise, of

course, that this is not a singularly American phenomenon -I'm sure it would be

evident in any major European city too. But, perhaps because we were in

unfamiliar territory, the number of museums, galleries, exhibition centres,

libraries and gardens, often immortalising the names of their dynastic founders,

was overwhelming in terms of profusion and choice.

Museums, country mansions and gardens named after Du Pont, Rockefeller,

Guggenheim, Frick, Carnegie, Ford, Vanderbilt, Madison, Getty, Gates, Morgan,

and dozens of others, exist for the invigoration and refreshment of the minds and

spirits of their own citizens and millions of visitors every year. Rejuvenation of

the psyche, such as might be gained when contemplating the Rembrandt self-

portrait in the Frick museum, is a gift of incalculable worth. We asked ourselves

what all this is really about, especially as it is provided practically free!

Tax advantages? Vanity?

There were (and are) undoubtedly tax advantages for those who bequeath their

money in this way, but the vast fortunes from which these bequests were made

must already have existed - and been taxed - having been generated from

business empires in oil, steel, machine manufacturing, merchanting, mining.

shipping, transport, entertainment, gunpowder, invention and innovation,

banking, insurance and finance - and many others.

It's therefore clear that what lies behind multi-billion dollar charitable

foundations responsible for such great works, without which entire nations

would be hugely impoverished, is more than tax considerations. The answer is

probably quite simple, but it merits further thought. It's possible, of course, that

some of these great public gifts were, at heart, mere vanity projects, intended to

commemorate, say in the form of a fine gallery, the status and wealth of the

benefactor. But neither vanity nor tax sheltering can provide the whole

explanation.

It is always popular to bleat about the need to reduce the gap between rich and

poor, and the stock answer to this problem is to "tax the rich". Well, yes - but

that cry is more of a knee-jerk than a reasoned response. Let's say the

government taxed them to the point of total confiscation, so that if a role for

creating beautiful objects still existed, its execution would fall to government-

paid civil servants. What would the world look like?

Either/or "doublethink"

Yet judgmental moralizing persists unabated. How often have you heard an

interviewer quizzing a high achiever with something like this: "Now that you have done so well, don't you think you should give something back?" Implicit in this

inane question is the notion that you must have "taken" something, for why else

speak of "giving back? This nonsense comes from either/or" doublethink that

treats economics as a zero-sum game. Were it so, standards of living worldwide

would have stagnated rather than rise, year after year.

"Seen" and "unseen"

Let's take it further. The subject of my essay last Monday was "the seen and the

unseen" in economic choices. Just as the cost of repairing that broken window is

'seen", and the array of preferred and more productive alternative uses for that

money lie in the world of "unseen", so it is in the case we are now considering

All these wonderful monuments to human endeavour and enterprise stand

proudly evident in the world of things "seen". As ever, what is "not seen" is the

alternative uses to which these immensely wealthy entrepreneurs might have

put their money. After all, that money represents the savings achieved by earlier

commercial activity - savings that are the seed-corn to be ploughed back into yet

another round of manifestly profitable business activity.

But why was that unseen possible choice not the one that they selected?

Alternatively, still in the world of unseen possibilities, why did they not choose to

allocate those savings to building new factories, installing new machines,

investing in new fleets of ships? Creating new empires in the quest for yet more

wealth? More, and yet more, of the same?

A different explanation

My preferred, but unseen, explanation is that these great industrialists and

merchants reached a point at which they recognized true sufficiency;, that they

simply had no unsatisfied material needs: that "enough is enough"

When this happens at the personal level, a different, equally undeniable human

instinct steps in and raises sights from the personal to the communal.

At this point they recognize that the passions they have most truly valued in life

the art, the music, the books, the gardens - are always appreciated still more

intensely when shared. That's the "unseen" instinctual choice. And that is why all

those gardens, museums and concert halls are built and the people invited in.

Why else is there an organ with 10,010 pipes in the great house at Longwood

Gardens, Pennsylvania, one of the homes of those gunpowder magnates, the Du

Ponts, piping Frescobaldi and Bach to rapt audiences every day?

What this unseen motivation has achieved in raising the human spirit, which is

after all the real bequest, is utterly incalculable. And it will persist in every age.

The desire to share what is most prized is a distinctly human attribute, and we

are all enriched by it.

Even New York's Central Park was originally gifted to the city by a number of

"civic-minded philanthropists", and we express our eternal gratitude by visiting it. Nor is it confined to the arts. Most hospitals and medical research centres were

founded by philanthropists. It goes on and on. This is a dimension of human

action that cuts right across conventional notions of the respective roles of state

and private funding.

We should recognize that privately motivated expenditure is natural and

watchful, but never interventionist. The same cannot be said for so many state-

sponsored projects with limitless budgets that no taxpayer voted for.