The sustenance of a nation is only possible when the government has enough revenue to support its projects, pay the workers, and continually develop its infrastructure. During his time as the finance minister, Alexander Hamilton opined that it was important for the government to collect internal and external taxes that would help pay the enormous debt. Comparatively, Adam Smith argued that the levying of taxes should be done in a way that makes it convenient for the people to pay. His belief was that taxes should be proportional to salary. The other economist of interest is David Ricardo, who wrote detailed principles regarding taxation but failed to propose a specific system that the British government could adopt following the Napoleonic Wars. Although the government needs taxes from citizens’ income, trade and land to carry out their projects, it is important for politicians to establish law, order, and an enabling environment for people to thrive. Therefore, I hold the view that Adam Smith’s liberal strategy can be utilized by governments, whether in a financial crisis or boom, for the benefit of citizens and a flourishing economy.
The first area of contention between these economists is the role that the government plays in the endeavor to ensure a smooth process of tax collection. Riccardo and Hamilton were focused on raising money for the sustenance of the government. However, Smith’s strategy was to enhance productivity across different ranks and fairness in taxation. Smith believed that manufacturers and commerce rarely have sustainable success without regular administration of justice. Whenever there is abused property rights and failed authority by the government to enforce debt repayment, businesses cannot thrive1. The implication is that he had high expectations for the government to maintain good policies that would promote specialization and division of labor for people across all ranks. The strategy perfectly reflects symbiosis in which the government provides law and order for sustainable markets so citizens pay their dues. Conversely, Hamilton argues that public credit is significant proof of a good government and its management as it releases the country from a national embarrassment such as the one the United States was facing after borrowing millions for the supply of the continental army2. Noteworthy, Hamilton saw people as a way for the government to protect itself from the humiliation that comes with having a huge foreign debt that resulted from the revolution era when America did not have the power to tax.
In addition, Adam Smith provided historical evidence to demonstrate the interconnection between politics and the economy. Smith portrays markets as operating within the broader social context of law and order3. The same conditions that enhance a flourishing industry and trade allow the treasury to get credit from the entrepreneurs. If the government proves that they can protect property rights, the businessmen will be willing to give their savings in extraordinary times and vice versa. Smith further argued that taxes from citizens and foreigners living or working in the nation should be the main strategy used as a source of income for the country.
Smith developed the four famous cannons for an ideal taxation system. They include convenience, fairness, efficiency, and certainty4. The government had an obligation to ensure that their way of getting revenue was ideal for the citizens. For instance, a value-added tax strategy might be good because there are not many procedures for payment. Moreover, he was concerned about fairness because he wanted the rich to be taxed more than the poor. The rank-based taxation distributes the burden of tax equitably across all workers. Efficiency is the ease of collection and payment in a way that is not deemed burdensome.
Similarly, David Ricardo was a liberalist whose stance was that the Landlords would get more income from the national government as the federalists receive little, which would then cause economic stagnation. He advocated for an increase in population for the appreciation of real estate. One of his taxation principles was getting revenues from the landowners and enhancing the value of the land. Smith maintained that the landlords’ proportions would be increased with a diminished cost of production5. Conversely, Ricardo maintained that when the cost of labor is low and the produce is abundant, it will depreciate the land value such that the biggest beneficiaries will be the capitalist and consumers6. Smith wanted to provide a principle that allows for a good outcome to all people. However, Ricardo’s analysis is more accurate as it shows that the interest of the landowners would interfere with that of the community and the revenues from the government.
The other strategy was aimed at having a tax reservoir for emergency times. Hamilton believed it was impossible for the government to raise its revenues from both internal and external taxes to have a surplus and sustain the economy in times of war. He further opined that the confederation is the main legislation for states and governments’ association with corporates and individuals7. His point on the constitution confers the rights of the taxpayer while providing the obligation of the government. Particularly, when the politician can be held accountable to correctly using taxpayer money, the economy thrives. The principle is consistent with one of Smith’s cannon, certainty. Thus, when there are policies in place, there is a surety that the politicians will protect the citizens even as they pay their dues.
These economists provided principles for creating an enabling environment for trade beyond their respective borders. Smith’s and Riccardo’s insight on free trade to enhance international transactions is perhaps one of the important principles that support a symbiotic co-existence between the government and its citizens. Selling of goods and services remains one of the ways to enhance the revenue of the government. Smith believed that monopoly of trade causes “malignant expedients of the mercantile system” while depressing the markets of other countries8. Ricardo held to a similar argument but differed on the issue of making a treaty with the mother country because he argued that doing so would make the mother country purchase goods at a similar cost as it is in the country while there are other options for getting similar commodities at a lower cost. Therefore, having monopolies changes relationships to be more parasitic, where one nation gains at the expense of the other.
In conclusion, it is vital in the government’s endeavor to get taxes and revenue for the running of its affair. There are multiple ways from which the taxes can be obtained, including taxable income from consumers, landowners rent, and trade, where tax calculations are made on pricing. Most countries combine all to ensure that all citizens and foreigners are actively involved in building the nation. Importantly, it is vital for government policies to be favorable to the people and make it easy for them to work hard and get money.
Works Cited
Hamilton Alexander., et al. The Federalist & The Anti-Federalist Papers: Complete Collection. New York University Libraries, 2018.
Ricardo, David. On the Principles of Political Economy and Taxation 1817. Batoche Books, 2001.
Smith, Adam. The Wealth of Nations. Princeton University Press, 1902.
Footnotes
- Adam. “The Wealth of Nations”. P.262.
- Hamilton A., et al. “The Federalist & The Anti-Federalist Papers: Complete Collection”. P.61.
- Adam. “The Wealth of Nations”. P.65.
- Adam. “The Wealth of Nations”. P.65.
- David. “On the Principles of Political Economy and Taxation 1817” P.241.
- David. “On the Principles of Political Economy and Taxation 1817” P.242.
- Hamilton A., et al. “The Federalist & The Anti-Federalist Papers: Complete Collection”. P.62.
- David. “On the Principles of Political Economy and Taxation 1817” P.245.