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Affluent Christian Investor | March 20, 2019

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Founding Fathers’ Plan: Governments Compete Over Us

United States Constitution.

History has shown that smaller separate states give rise to a more vibrate economic and free society, which has been developed and is significantly more predominate in Western Civilization as institutional competition.   Several studies empirically demonstrate “that fiscal competition and direct democracy reduce the available funds for income redistribution or lead to more targeted redistribution with less waste,”[1] or as Daniel Mitchell, of the Center for Freedom and Prosperity, aptly puts it, “fiscal competition makes it difficult for governments to expand the welfare state to dangerous levels.  In summary, it is a way of protecting governments from the worst impulses of their politicians.”[2]

The Great Experiment of the United States is an empirical example of this, as was Europe as it rose from the Dark and Middle Ages into the Renaissance and Enlightenment Ages, and outpaced societies and civilizations in other parts of the world.[3]  “It was the dynamic consequences of the competition amongst fragmented political bodies [European States] that resulted in an especially creative environment….It was precisely the lack of large scale political and economic order that created the essential environment hospitable to economic growth and ultimately human freedoms.”[4]  As many of the great philosophers of the Enlightenment influence echoed this sentiment:

David Hume (1742):   “Europe is at present a copy at large of what Greece was formerly a pattern in miniature.”[5]

Charles-Louis de Secondat Montesquieu (1748):  “In Europe, the natural divisions form many medium-sized states in which the government of laws is not incompatible with the maintenance of the state…This is what formed a genius for liberty.”[6]

Jean Jacques Rousseau (1762):   “The same laws cannot suit so many diverse provinces with different customs, situated in the most various climates and incapable of enduring a uniform government.”[7]

Adam Ferguson (1767):   “[Government] pry[s], with habits of familiarity and freedom, into pretensions of those who would rule…In proportion as territory is extended, its parts lose their relative importance to the whole.  Its inhabitants cease to perceive their connection with the state…Distance from the feats of administration and indifference to the persons who contend for preferment teach the majority to consider themselves as the subjects of a sovereignty.”[8]

Adam Smith (1776):   “The…proprietor of stock is properly a citizen of the world and is not necessarily attached to any particular country.   He would be apt to abandon the country in which he is exposed to a vexatious inquisition in order to be assessed a burdensome tax and would remove his stock to some country where he could either carry on his business or enjoy his fortune at ease.”[9]

Immanuel Kant (1784):   “Further, civil liberty cannot now be easily assailed without inflicting such damage as will be felt in all trades and industries and especially in commerce…”[10]

Federal Farmer (1787): “One government and general legislation alone never can extend equal benefits to all parts of the United States:  Different laws, customs and opinions exist in the different states which by a uniform system of laws would be unreasonably invaded.”[11]

Alexis de Tocqueville (1835):   “Small nations have therefore always been the cradle of political liberty…If none but small nations existed, I do not doubt that mankind would be more happy and more free.  Nothing is more opposed to the well-being and the freedom of men than vast empires…In small states, the watchfulness of society penetrates everywhere…The efforts and resources of the citizens are turned to the internal well-being…uniformity to the laws which does not always suit the diversity of customs and of districts.”[12]

Lord Acton (1877):  “[T]he distribution of power among several states is the best check on democracy.   By developing centres of government and discussion it promotes the diffusion of political knowledge and the maintenance of healthy and independent opinion.  It is the protectorate of minorities and the consecration of self-government.”[13]

Lord James Bryce (1888):   “Federalism enables a people to try experiments which could not safely be tried in a large centralized country.”[14]

Perhaps the beauty of federalism was best stated by economist Douglass North when he said, “It was the dynamic consequences of the competition amongst fragmented political bodies that resulted in an especially creative environment…It was precisely the lack of large scale political and economic order that created the essential environment hospitable to economic growth and ultimately human freedoms.”[15]  An explicit example of institutional competition is tax rates.  As economist Thomas Sowell correlates, “Even if the domestic tax rate is not “high” by historic standards, what matters now is whether it is high compared to tax rates in other countries to which large sums of money can be readily sent electronically.  Meanwhile, unemployed workers cannot nearly so readily relocate to other countries to take the jobs created there by American investments fleeing higher tax rates at home.”[16]  The same phenomenon is true between our states.  Businesses flee one state to operate at a lower tax rate in another, and most certainly give consideration to local and state tax rates when expanding business – like a manufacturing operation or distribution center – outside of their current location.  It is natural and wise for businesses to make these decisions.

[1] Lars P. Feld (presenter) and Jan Schnellenbach (co-author), September 3, 2012, “Redistribution through public budgets: Who pays, who receives, and what effects do political institutions have?” University of Freiburg: Walter Institut, Freiburg: University of Heidelberg, (Prague, Czech Republic: The Mont Pelerin Society: Mont Pelerin Society General Meeting 2012), [http://danieljmitchell.files.wordpress.com/2012/09/session-2-_-2-lars-feld-germany.pdf], p. 1.

[2] Dan Mitchell, September 4, 2012, “Study from German Economists Shows that Tax Competition and Fiscal Decentralization Limit Income Redistribution,” International Liberty, [http://danieljmitchell.wordpress.com/2012/09/04/study-from-german-economists-shows-that-tax-competition-and-fiscal-decentralization-limit-income-redistribution/].

[3] Roland Vaubel, May 2007, A History of Thought on Institutional Competition,” (Mannheim, Germany: University of Mannheim), [http://www.vwl.uni-mannheim.de/vaubel/pdf-Dateien/competition.pdf].

[4] Roland Vaubel, May 2007, A History of Thought on Institutional Competition,” (Mannheim, Germany: University of Mannheim), [http://www.vwl.uni-mannheim.de/vaubel/pdf-Dateien/competition.pdf], p. 19.

[5] Roland Vaubel, May 2007, A History of Thought on Institutional Competition,” (Mannheim, Germany: University of Mannheim), [http://www.vwl.uni-mannheim.de/vaubel/pdf-Dateien/competition.pdf], p. 3.

[6] Roland Vaubel, May 2007, A History of Thought on Institutional Competition,” (Mannheim, Germany: University of Mannheim), [http://www.vwl.uni-mannheim.de/vaubel/pdf-Dateien/competition.pdf], p. 4.

[7] Roland Vaubel, May 2007, A History of Thought on Institutional Competition,” (Mannheim, Germany: University of Mannheim), [http://www.vwl.uni-mannheim.de/vaubel/pdf-Dateien/competition.pdf], p. 4.

[8] Roland Vaubel, May 2007, A History of Thought on Institutional Competition,” (Mannheim, Germany: University of Mannheim), [http://www.vwl.uni-mannheim.de/vaubel/pdf-Dateien/competition.pdf], p. 5.

[9] Roland Vaubel, May 2007, A History of Thought on Institutional Competition,” (Mannheim, Germany: University of Mannheim), [http://www.vwl.uni-mannheim.de/vaubel/pdf-Dateien/competition.pdf], p. 5.

[10] Roland Vaubel, May 2007, A History of Thought on Institutional Competition,” (Mannheim, Germany: University of Mannheim), [http://www.vwl.uni-mannheim.de/vaubel/pdf-Dateien/competition.pdf], p. 6.

[11] Roland Vaubel, May 2007, A History of Thought on Institutional Competition,” (Mannheim, Germany: University of Mannheim), [http://www.vwl.uni-mannheim.de/vaubel/pdf-Dateien/competition.pdf], p. 8.

[12] Roland Vaubel, May 2007, A History of Thought on Institutional Competition,” (Mannheim, Germany: University of Mannheim), [http://www.vwl.uni-mannheim.de/vaubel/pdf-Dateien/competition.pdf], p. 9.

[13] Roland Vaubel, May 2007, A History of Thought on Institutional Competition,” (Mannheim, Germany: University of Mannheim), [http://www.vwl.uni-mannheim.de/vaubel/pdf-Dateien/competition.pdf], p. 9.

[14] Roland Vaubel, May 2007, A History of Thought on Institutional Competition,” (Mannheim, Germany: University of Mannheim), [http://www.vwl.uni-mannheim.de/vaubel/pdf-Dateien/competition.pdf], p. 10.

[15] Roland Vaubel, May 2007, A History of Thought on Institutional Competition,” (Mannheim, Germany: University of Mannheim), [http://www.vwl.uni-mannheim.de/vaubel/pdf-Dateien/competition.pdf], p. 19.

[16] Thomas Sowell, 2012, “’Trickle Down’ Theory and ‘Tax Cuts for the Rich’,” (Stanford University, Stanford, CA:   Hoover Institute Press), Publication No. 635, [http://www.tsowell.com/images/Hoover%20Proof.pdf], p. 13.

 

 

Originally published on Townhall Finance.

 

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