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Inheritance tax was the original solution to this. Someone could be as rich as Croesus during their lifetime, but on their death returned the money from whence it came.

Their offspring could benefit from a generous endowment of a proportion of this wealth, say 10%-20%.

Edit: and no sneaking about with Trusts, either.

Inheritance taxes are always avoidable, and they could also have devastating consequences. Even if you could effectively prevent a single coin getting to the hands of your children, that would mean lavish expenditures, not investment.

Tax avoidance is a perennial problem, to be sure. There's always an "arms race" between the taxers and the avoiders, but that isn't a reason not to have taxes in the first place.

In the context of evaluating a tax, the ability to avoid it and the difficulty to apply it is definitely one key design concept.

A tax on people that eat their brocoli would be highly impractical!

You're correct in that it's foolish to institute an uncollectable tax, but I don't think inheritance tax necessarily falls into that category any more than, say, capital gains taxes.

Is paying for your kids education inheritance? Are pre-paid company contracts for a lifetime inheritance? etc etc.

There are some definite difficulties in implementation. But even then, my argument is that it could be a really harmful tax if it could be applied at all.

The evidence is that allowing large inheritances is harmful to society at large. It allows for an accumulation of economic influence within too few hands, and the creation of an entrenched elite. The "Founding Fathers" of the US were particularly opposed to it for this reason.

One would have to balance the "harm" caused to the children of wealthy people for not inheriting wealth (mostly when they are around 50-60 yr old themselves), with the harm caused to society at large.

What evidence?

> One would have to balance the "harm" caused to the children of wealthy people for not inheriting wealth (mostly when they are around 50-60 yr old themselves), with the harm caused to society at large.

I wonder if we could think of other examples of how harming a minority of people can be good for society at large. But regardless of the moral standpoint of the remark you said, you also have to account the harm it does to society to make people spend extra time hiding their wealth and spending it more frivolously.

My point is that there's no obvious harm implicit in denying people an inheritance. They did nothing to earn it. There's no inherent right to be bequeathed wealth; that this is evident is that it is nigh on impossible to sue one's parents (or their estate) for not willing their wealth to you (in the US; under Napoleonic law, there is a right to inherit).

Many people spend inherited wealth frivolously. Business acumen isn't known to be genetically determined, whereas political influence is certainly affected by wealth and pedigree, see George Bush the first and the second.

In the other direction though, there is inherent right (IMO). I have the right, in my pursuit of happiness, to make allocations of my lawfully earned money to my current needs, to my retirement savings, to my children's clothing and education, and other such pursuits and accounts as I see fit.

There is harm to the donor to abolishing inheritance. I don't want to live in a world where "I farm this land, just as my father, his father, and his father for 5 generations has done." is not possible.

Sure but if we're going to live in the land of inheritance then we need to toss the ideas that "anybody can make it" or "I earned this."

>I don't want to live in a world where "I farm this land, just as my father, his father, and his father for 5 generations has done." is not possible.

Why not? A man works hard to support himself but allowing four generations of free-riders seems like a pretty bad idea. It strikes me as a sort of neo-monarchism. In the past we had royalty blessed by god and passed through blood and now we have the economic elite blessed by capital and passed through blood.

I don't know how much time you've spent on family farms, but from what I've seen, I'd not describe them as "free-riders" on the land or on past generations.

Then they can earn the farm the same way their father or grandfather did. If they can't earn it why should they have it? That's what meritocracy means.

Why should education be privately financed? Why should there be a need to privately pay for your children's basic (or university) education?

There isn't a need, there is a desire.

You've asserted several times in this thread that there are devastating consequences to the estate tax but never explain what those might be. Care to enlighten?

The idea of inheritance taxes are that once you are dead, you don't care about paying taxes. However, leaving wealth for your children is a huge economic incentive. As Friedman puts it: "People go to an irrational length to provide their kids a better life than they will ever get".

If you could effectively put 100% tax on inheritance(which you can't in practice), it means your utility of leaving wealth around becomes 0. Now you want to spend that wealth as much as possible, and it turns into consumption. You would sell and spend everything you have for lavish expenses, which means a reduction in capital investment, which means slower economic growth.

https://www.youtube.com/watch?v=MRpEV2tmYz4

Yeah I'm totally okay with that, a certain point society has to serve its people and not just the abstract view of growth at all costs. Consumption is good for the economy and inheritance taxes are necessary to provide equality of opportunity.

> Consumption is good for the economy

I doubt hedonist consumption is what Keynes had in mind.

> inheritance taxes are necessary to provide equality of opportunity.

Lets take this to the extreme: lets say that your father could not provide you with anything but minimum substance until your coming of age (18?). Anything given to you by your parents would be taxed away. This means that you now cannot go to any college that is not provided to you by credit. But you have no assets and no income, so nobody will loan you any money. Plus, you don't have money for rent, so you need to work immediately to pay for your own place.

Maybe you feel sympathy for the millions of people that actually live that, but how is forcing everyone to go through that be better for society at large?

Or think what it would mean for the state to actually do that: what if you had to build any infrastructure built by a previous generation from scratch, because "its not fair the SF bridge is nicer than the Brookly bridge, its inherited".

The emotional answer I have against advocating inheritance tax is that the goal is not to be fair, its to be better. And certainly fair by destruction, by removing everything, is not better.

How would you change it short of overthrowing capitalism? Capitalism, almost by definition, "allows the rich to increase their wealth without actually working" (although of course less wealthy people can do the same).

Parent poster proposed a way to help workers by changing the incentives in the system to reinvest more into productivity/research, without throwing out the system that has made our society propsperous.

In the past there wasn't as much pressure on capitalism to be sustainable at a global level. This pressure has increased without anyone doing anything. Which means you just have to wait for one or two more 2008 level meltdowns.

Taxing capital itself, rent-generating assets, and inheritance.

Providing for a living working wage. Providing for labour unionisation or equivalent functions. Curtailing the capability of the wealthy to seek self-serving concessions from legislatures. Supporting a vibrant programme of public schools and works.

Pretty much Adam Smith's prescription in 1776.

Dang that doesn't sound true at all. Smith arguing for unionization?

Also by classical economics, you cant afford to give less than living wage because then you would kill the people that work for it.

Wealth of Nations, Book I, Chapter VIII, generally. Smith doesn'tquite say "allow unions", but he makes all the arguments in favour:

As soon as land becomes private property, the landlord demands a share of almost all the produce which7 the labourer can either raise, or collect from it. His rent makes the first deduction from the produce of the labour which is employed upon land....*

[I]n every part of Europe, twenty workmen serve under a master for one that is independent; and the wages of labour are everywhere understood to be, what they usually are, when the labourer is one person, and the owner of the stock which employs him another....The workmen desire to get as much, the masters to give as little as possible. The former are disposed to combine in order to raise, the latter in order to lower the wages of labour.

It is not, however, difficult to foresee which of the two parties must ... have the advantage in the dispute, and force the other into a compliance with their terms. The masters, being fewer in number, can combine much more easily; and the law, besides, authorizes, or at least does not prohibit their combinations, while it prohibits those of the workmen. We have no acts of parliament against combining to lower the price of work; but many against combining to raise it. In all such disputes the masters can hold out much longer.

We rarely hear ... of the combinations of masters, though frequently of those of workmen. But whoever imagines ... that masters rarely combine, is as ignorant of the world as of the subject. Masters are always and everywhere in a sort of tacit, but constant and uniform combination, not to raise the wages of labour above their actual rate. To violate this combination is everywhere a most unpopular action, and a sort of reproach to a master among his neighbours and equals. We seldom, indeed, hear of this combination, because it is the usual, and one may say, the natural state of things, which nobody ever hears of.

Masters, too, sometimes enter into particular combinations to sink the wages of labour even below this rate. These are always conducted with the utmost silence and secrecy, till the moment of execution, and when the workmen yield, as they sometimes do, without resistance, though severely felt by them, they are never heard of by other people. Such combinations, however, are frequently resisted by a contrary defensive combination of the workmen ... But whether their combinations be offensive or defensive, they are always abundantly heard of. In order to bring the point to a speedy decision, they have always recourse to the loudest clamour, and sometimes to the most shocking violence and outrage. They are desperate, and act with the folly and extravagance of desperate men, who must either starve, or frighten their masters into an immediate compliance with their demands. The masters upon these occasions are just as clamorous upon the other side, and never cease to call aloud for the assistance of the civil magistrate, and the rigorous execution of those laws which have been enacted with so much severity against the combinations of servants, labourers, and journeymen....

A man must always live by his work, and his wages must at least be sufficient to maintain him. They must even upon most occasions be somewhat more; otherwise it would be impossible for him to bring up a family, and the race of such workmen could not last beyond the first generation.

https://en.m.wikisource.org/wiki/The_Wealth_of_Nations/Book_...

I remember.

That the employers monopolize and combine and have advantages over the worker is established, but not that doing the same on the other side would be beneficial. He mentions in spirit on in parallel that any measure to try to reduce that power of monopolization would be either ineffectual or make it worse.

Within the Smithy naivete, one could argue that unionization would mean that by necessity, employers would be require to conspire to be able to deal with unions. Of course, I don't think he had the word for union, certainly not the concept we have today, but he clearly condemns how employers are also able to use force against the gathering of workers.

My read, again, is that Smith pretty much lays out the full case for unions, but stops short of overtly endorsing them.

But he explains the advantage, the unfairness of circumstance, of law, of practice, and of effect.

Elsewhere he's far more direct in challenging economic power.

And if you read the followers of Smith, particularly Mill, that endorsement is far clearer still.

Regards wages below subsistence, I strongly recommend you read Smith's account of China. Also WoN 1.8.

So long as there's a surplus population, employers will not want for labour.

Yes, that people kill their own children, pretty gross. I wonder if that was accurate: how could he have gotten this kind of information back then?

But China is a very extreme case: in general, if you dont have enough money to support a family, you wouldnt have a family, and lower wages would affect the demographic growth of the lowest earning members of society. The logical corollary for this is that you always will have people in the lowest earning spectrum, because if they earned more they would have more children, increase surplus and reduce wages. We don't have a reserve army concept yet at WoN, unfortunately.

(btw Marx seems to agree 100% with this concept of lowest earning spectrum/demographics)

The British East India Company as a thing by 1776 (its stock collapse, a few years earlier, is highly likely to have cloured Smith's thinking on joint stock companies generally).

In 1672, the English East India Company finally secured a trading post in Taiwan - ten years after the Dutch East India Company had been expelled from the island by the Chinese. The Company was soon engaged in direct and regular trade with the Chinese from that base and was permitted to make regular voyages to Amoy, Chusan and Canton. By the turn of the century, the Company's base for the China trade was transferred from Taiwan to its "factory" at Canton. With its Royal Charter, the Company was granted the privilege of monopoly of trade in the East Indies until 1833.

From 1700 onwards, most foreign traders were confined in Canton, where rigid restrictions were imposed through the practice of Co-hong, a guild of Chinese merchants, the sole recognized agency between foreign and Chinese merchants.

http://www.bl.uk/reshelp/findhelpregion/asia/china/guidesour...

You can also find David Ricardo and Malthus in agreement on wages. Ricardo gives us the subsistence theory of wages (I associate this as the Iron Law of Wages though that may be incorrect ... ah, J.K. Galbraith, whom I've read, makes that attribution):

https://en.m.wikipedia.org/wiki/Iron_law_of_wages

Ah, I mistook subsistence of Smith with Ricardo? (I finished Ricardo's book a month ago and WoN about 3 months ago, easy to mix up, particularly on Ricardo quoting WoN).

Nice exchange of messages! Glad to be able to talk about things written 250 years ago with random internet strangers.

I've yet to read Ricardo closely, though I'm somewhat familiar with his work. There's less of it, among other things (he died young and kept busy with other matters).

That said, on wages, I get the impression he's not all that far from Smith.

And likewise, appreciate the discussion.

You have to start somewhere though. Changing the "fundamental structure of our economy" takes nothing short of a revolution.

Wealth is not a zero sum game.

Are you sure?

The earth has finite resources. Wealth is a zero sum game. Even if you want to look at things like entertainment that can be reporduced cheaply, musicians and directors need fed, food is limited, therefore even films/music are limited.

Yes. If wealth were a zero-sum game, every choice would have to result in the same total amount of wealth in the world. Wealth could not be created or destroyed, only transferred. Any use of a resource would be equally as valuable as any other.

That's clearly not the case. The classic example is building a house alone in the woods, but let's consider art. With different choices, a person could use the same paint to make a good or a bad painting. The choices made while painting decide if it will be a mess or something beautiful. Even if it's never shown or sold to anyone else, the person who made a beautiful painting would be wealthier for it.

Wealth, generally, is destroyed with time.

Much of what's seen as wealth production is instead liquidity production -- turning natural capital into financial currency. In the case of any production chain founded on fossil-fuel energy, the transformation requires a draw-down of natural capital worth many millions of times the market-price and wealth "created".

Activities founded on renewable or sustainable processes are less fraught, but there's still the accounting for potential disruption or reduction: soil loss (rougly 100x the rate of creation), sink-exhaustion (waste and pollution factors), biodiversity loss (rates of extinction > speciation), and the like.

There's little accounting for any of this within conventional economic theory. Ecological, biophysical, and thermoeconomics address parts. Steve Keen is starting to write mathematical descriptions of production factors in which the role of energy is taken into account.

The only non-finite resource is knowledge, and even that runs into asymptotes of diminishing marginal utility.

Everything is finite when you have a fixed amount of information and mass in the universe. That doesn't mean the common economic definitions of wealth are useless. The act of creating capital such as a piece of art, a new algorithm, or a manufacturing tool all change the total amount of wealth in the world.

Information is also amost certainly bounded. In humans it's limited by the rate of transmissibility -- if what the next generation has to learn is greater than what the present generation can pass on, knowledge will be lost.

Given various inefficiencies of educational institutions, this is all but certain to be occurring as we speak. There is a notion of a "forgetting curve".

And, as you note, information can at best asymptotically achieve some maximum theoretical efficiency. It's not a limitless fount of potential.

The earth has finite resources. Let's go with that point for a moment. Do you think there were more resources available on planet earth 5000 years ago or today? The world population was several orders of magnitude less than today, natural resources had not yet been fully exploited, and yet, mankind was much, much poorer in terms of quality of life.

What happened in the meantime? We live in the most abundant age in history. Worldwide poverty is at an all-time low. Surely wealth is growing in absolute terms and it's not just the top 1% benefiting.

Depressions have also worked.