0.4 Income distribution  (Page 12/18)

Here we devote more attention to Simons because his contributions are not fully recognized today. Henry Simons was by all accounts a marvelous mentor for several future Chicago Nobel Laureates in economics such as Milton Freidman and J.M. Buchanan. He had a vision of a meritocratic America where economy and society rested on freedom and liberty above all, but with safeguards to prevent misuse of both economic or political power. He was a classical liberal if not a full-fledged libertarian who had little taste for “big government” but one who had very harsh words for reactionaries.

Economics students today are invariably surprised to learn that present at the creation of the Chicago School was one who favored:

1. Progressive income taxes
2. High rates of estate taxes (death taxes)
3. Vigorous enforcement of antitrust laws, to prevent abuses of monopoly and oligopoly powers.

Simons advocated some degree of progressive income taxes and high death duties because he believed that a well-functioning capitalistic system would generate, besides prosperity for the great masses, significant income inequalities. This, he expected would occur precisely because of the power of the system to deliver the goods: to furnish the products and the services people needed and wanted efficiently and cheaply. In the process, some entrepreneurs and capitalists would receive, by luck or good timing or by entrepreneurial cunning, unusually high rates of return on their investments in capital and in labor skills. As these high returns flow largely from the operations of a national market made possible by institutions established by a free society, Simons saw little reason to allow the most fortunate to keep all of their winnings. He did not view reasonable levels of progressive taxes and high inheritance taxes as threats to capitalism. Rather, he thought use of these tools would in the end help nourish the individual freedoms upon which capitalism depended for its success. In his view, these safeguards would limit, limiting the scope for severe inequality and the concentration of economic power over time. Thus, capitalism could be prevented from destroying itself from its own successes. In 21st century America, Henry Simons would argue very strongly against the repeal of death taxes, on grounds that such levies not only make economic outcomes fairer, they would be perceived to do so, thereby curbing the scope for social conflict over economic outcomes. Lest you think that Simons belonged on the left wing of the political continuum, consider that he thought that a 10 percent share of Federal taxes in GNP was just about right (versus over 22 percent today). Simons’ advocacy of strong antitrust policies flowed also from his fear of the threat to capitalism from excessive concentration of economic power. Like so many of his contemporaries in (and outside) the Chicago School, Simons was a steadfast proponent of competition. Therefore he was also an ardent foe of monopolistic practices, because private sector monopoly invariably yields inefficiency and usually inequity both in rich and poor nations. He was also quite even-handed in his disdain for restrictions to competition. He opposed monopoly power by labor as well as by business, viewing labor unions as disposed to such anti-competitive practices as featherbedding.