Adam Smith and progressive taxation


People on the left sometimes accuse us of misrepresenting Adam Smith who, they say, was in favour of progressive taxation and certain other state interventions. On his (rather excellent) blog, David Friedman has convincingly refuted this error. An extract:

"The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state." (Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations)

Taxation in proportion to revenue isn't progressive taxation, it's proportional taxation—in modern terminology, a flat tax. The quote not only isn't evidence for the claim, it's evidence against it—important evidence, since it is the first of the maxims of taxation with which Smith introduces his discussion of possible taxes.

Quite an important difference – progressive taxation is, by definition, a disproportionate system. 

What about the idea that Smith favoured a public school system? Back to Friedman:

The web page quotes (from another web page):

"For a very small expence the public can facilitate, can encourage, and can even impose upon almost the whole body of the people the necessity of acquiring those most essential parts of education."

Smith has a long discussion of possible ways of organizing and funding education, in the course of which he argues both for and against a variety of alternatives, so it is easy enough to select out a passage which appears to be for government provision, such as this one. For an example on the other side:

"Those parts of education, it is to be observed, for the teaching of which there are no public institutions, are generally the best taught."

His final summary statement on the subject, however, is:

The expense of the institutions for education and religious instruction is likewise, no doubt, beneficial to the whole society, and may, therefore, without injustice, be defrayed by the general contribution of the whole society. This expense, however, might perhaps with equal propriety, and even with some advantage, be defrayed altogether by those who receive the immediate benefit of such education and instruction, or by the voluntary contribution of those who think they have occasion for either the one or the other.

Or in other words, some public funding of schooling is not unjust, but an entirely private system is also not unjust and might even be preferable.

Obviously, Adam Smith was wrong about many things (such as the labour theory of value he subscribed to), and none of this proves that the systems we tend to advocate are good. But it does give the lie to the idea that Smith was some sort of proto-socialist being cruelly misappropriated by classical liberals.