Saturday, December 10, 2016

Capitalism and Slavery Debate is not about differences in methodology

Marc Perry wrote about the ongoing argument over the relationship between slavery and the American economic development that is taking place between some economic historians (economists) and some new historians of capitalism (historians)  Some people, including the author of this essay at the Economist, view the argument as a controversy over differences in methodology between economists and historians. Several of the quotes by historians in Parry’s article seem consistent with this view. 

Personally, I do not view it as an argument about methods between historians and economists. The economists, including myself, who have criticized the work of Baptist and Beckert have focused more on their poor use of historical methods than their poor use economic methods.

There is no universally accepted description of appropriate research methods in history or economics. People within disciplines often argue about the appropriate methodology for the discipline. Nevertheless, I think that most historians would agree that good historical work presents an accurate historiography, so the reader understands the current state of the conversation on the topic, and builds an interpretation of the past based upon an honest and critical interpretation of the sources. Economic historians have criticized Baptist and his supporters for failing to follow these practices, for failing to do good history. I haven't criticized Baptist and his supporters  for not having a formal model or not doing econometric analysis. I have criticized them for misrepresenting what economists and historians have written and said about slavery. I have criticized them for creating interpretations of the past that are based upon made up stories and numbers rather than actual sources.

Misleading historiography.

One of the chief claims of Baptist and his supporters is that they have overturned a long held view of the slave economy of the South as stagnant and pre- or even anti- capitalist. This is one of the central claims of The Half. In Parry’s article, Edward Ayers echoes Baptist’s claim to novelty. “What’s exciting about that approach is the way it renders the slave South as a dynamic, changing society, in contrast to Genovese’s static, anti-capitalist vision, says Edward L. Ayers, a historian and former president of the University of Richmond. "To have that overturned so quickly," he says, "it looks more like the sciences than it does the humanities."” But these claims to have overturned long held views about slavery in the United States are based solely upon a misleading historiography.

It is simply a myth that Genovese’s view of the economics of slavery was held by the majority of economists or historians until Baptist and Beckert cam along. While I think it can safely be said that Genovese’s work on culture, such as Roll, Jordan, Roll remains relevant, his work on the economics of slavery, expressed in the Political Economy of Slavery has long been discounted by both economists and historians. Consider the interpretation of the South presented in an undergraduate text book three decades ago: George Brown Tindall’s America: A Narrative History Volume, 2nd edition (1988). Tindall wrote on page 371 that “More often than not the successful planter was a driving newcomer, bent on maximizing profits. While the profitability of slavery has been a long standing subject of controversy, in recent years, economic historians have reached the conclusion that the slaves on average supplied about a 10 percent return on their cost.” He went on to note that slaves were the most profitable investment available in the South, and that incomes in the South were not only comparable to the wealthiest countries in the World, but that in the newer cotton lands incomes were among the highest in the United States. The view that he presented to undergraduates almost 30 years ago was of a thriving and successful southern economy based on slave labor. There is no indication that he thought this was a controversial interpretation. 
Tindall was not an outlier, the interpretation in his textbook was the standard one among. In 1995, Robert Whaples surveyed a sample of both economists and historians who worked on economic history. He asked them whether they generally agreed, agreed with provisos, or generally disagreed with a series of statements. For the statement “Slavery was a system irrationally kept in existence by plantation owners who failed to perceive or were indifferent to their best economic interests,” ninety-three percent of economists and ninety percent of historians disagreed with the statement. For the statement “The slave system was economically moribund on the eve of the Civil War,” ninety-eight percent of economists and ninety-five percent of historians disagreed.

It is not just the claims about the nature of slavery in the American South that Baptist and his supporters misrepresent. I argued in another blogpost that Baptist’s entire argument against Rhode and Olmstead is about misrepresenting their argument. Beckert also claims an inordinate amount of novelty for his argument about the role of force (“war capitalism”) by choosing not to cite works like Findlay and O’Rourke’s Power and Plenty.

Creating interpretations of the past that are not based on evidence.

The claims about the size of the economic impact of slavery have not been based upon the available evidence. For instance, "The slave economy of the Southern states had ripple effects throughout the economy," Beckert wrote, "not just shaping but dominating it." Or according to Baptist “ All told more than $600 million, or almost half of the economic activity in the United States in 1836, derived directly or indirectly from cotton produced by the million odd slaves― 6 percent of the total US population―who in that year toiled in labor camps on slavery’s frontier.” Beckert makes the claim that slave produced cotton was the driving force based upon its predominant role among exports, and Baptist simply makes up the numbers that he uses to make his “estimate.”

In contrast, economic historians have noted that
1. Cotton was the largest export from the U.S., but exports were only about 9 % of GDP. Similarly, cotton accounted for about 23 % of income in the South, but the South accounted for only 26% of U.S. income. See D. A. Irwin, “The Optimal Tax on Antebellum U.S. Cotton Exports,” Journal of International Economics 60(2003):287) Ultimately, the value of cotton production was equal to about 6% of GDP.

2. The South had lower average incomes than the North; and per capita income was growing more slowly in the South even before the Civil War. See Unequal Gains by Lindert and Williamson Chapter 5. In addition, about twice as many people lived in the Union states.

3. The more important slavery was in a country or state the lower the level of income was in the future. Nathan Nunn “Slavery, Inequality and Economic Development in the Americas: An Examination of the Engerman-Sokoloff Argument (October 2007).

4. Slave states had lower levels of educational attainement and less innovation (measured by patents) than states without slavery. This was true even in the areas that were most like the North in geogrpahy and economic activity. See John Majewski "Why Did Northerners Oppose the Expansion of Slavery? Economic Developemnt and Education in the Limestone South" Chapter 14 in Slavery's Capitalsm.

Foner complains that for the economic historian history “is just a source of numbers, a source of data to throw into their equations." History is not just a source of numbers, but, if you are going to use numbers, shouldn’t they come from history, not the historian’s imagination? The current dispute is not about economic methods versus historical methods; it is about bad history. Because it is about bad history, it is all the more disappointing when historians like Foner, who know better, are willing to stand behind it. After his NYTimes review of Baptist's book I wrote a post titled "et tu Foner?"


Economic historians have criticized Baptist and his supporters because they are doing bad history. By the way, throughout this post I have used the phrase Baptist and his supporters not historians because I do not believe that they represent the discipline of history. There is far too much really good work being done to take the worst work as representative of the discipline. More than a few historians have questioned his historiography, his propensity to make things up, and his use of sources (see for instance this Historically Thinking podcast). After reading Slavery’s Capitalism I am not even convinced that Baptist and his supporters represent people who regard themselves as historians of capitalism.


Caitlin Rosenthal, for instance, said she would like to promote more cooperation between economists and historians (and I thought her paper in Slavery's Capitalism was consistent with this statment). Carlo Cipolla long ago noted that there are differences between economists and historians, but he argued these differences should complement not conflict with each other. Mary and I recently argued in the Journal of Institutional Economics that economists had much to gain by paying more attention to the historian’s craft. Finally, Kevin O’Rourke pointed out on twitter that the economic history department at Oxford has both economists and historians, and they seem to get along just fine.


Note: This post was edited on 11 December 2016 to add point number 4 in the list above and the reference to John Majewski's paper on the Limestone South.

Thursday, December 8, 2016

The New Post-Factual History

The Chronicle of Higher Education has published “Shackles and Dollars,” an article on the forum on slavery and capitalism that was held at Dartmouth. Dough Irwin moderated a discussion between Caitlin Rosenthal, Sven Beckert, Alan Olmstead and Trevon Logan. While reading the article, I realized that I had not really appreciated how revolutionary the work of Edward Baptist and his supporters is.  I had thought that it was just bad history: misleading historiography, misrepresenting the work of others, omitting evidence that is inconsistent with your claim, not providing evidence to support your claim, and simply making up evidence. Yes, it is true that in the past these things were regarded as characteristics of bad historical work, but that is the past. Baptist is on the cutting edge of bringing standards of historical scholarship in to line with a post-factual age. Baptist and his supporters are less interested in changing the questions that historians focus on than they are in changing the methods that historians use to answer questions. It is not the new history of capitalism; it is the new post-factual history.

Eric Foner is onboard. He tells us that the economic historians who point out that Baptist is just making stuff up are “champion nitpickers.” Foner declares that “I’m sure there are good, legitimate criticisms of the handling of economic data. But in some ways I think it’s almost irrelevant to the fundamental thrust of these works." The thrust of Baptist’s book (other than the style in which it is written) are the claim that unlike previous economists and historians he shows that the slave South was a capitalist system, the claim that slave grown cotton was the driving force behind economic growth, and the claim that the increases in cotton production were driven by ever more intense use of torture. The first claim is demonstrably false: The vast majority of economic historians, as well as many other historians, had long regraded slave owners as capitalists driven by profit motives (see this 1995 survey of economic historians conducted by Robert Whaples). Baptist’s only evidence to support the second claim is a series of numbers that he makes up and then proceeds to sum ; he does appear to be able to do at least some basic addition. (See Pseudoerasmus  for an extensive critique of the cotton driven growth argument, as well as pretty much everything else Baptist says; see also my blogpost.)  For the last claim Baptist provides no evidence in support of his argument and omits evidence that is inconsistent with his argument. When people challenge his argument his response is always the same: throw up a straw man and beat it to pieces. But, of course, all this is merely nitpicking. The critical evaluation of evidence is irrelevant to the fundamental thrust of the work.  
                
The article also notes that “For all the mudslinging, the slavery fight does not break cleanly along disciplinary lines. Historians under attack find support for their ideas in the writing of some economists, like Ronald Findlay and Kevin H. O’Rourke. What the article does not note is that Beckert’s book never mentions that Findlay and O’Rourke had made a similar argument six years earlier. As a matter of fact, Beckert does not cite Power and Plenty at all in his book. That is probably just more nitpicking.

                
The degree to which Baptist and his supporters seek a post-factual history was brought home to me again when I saw that Seth Rockman had tweeted that “new CHE article highlights economists thinking ahistorically and ahistoriographically.” Read the article and judge for yourself. I will, however, point out that the article notes that “Historians and economists criticize the new slavery scholarship on grounds that go beyond economics.” And it gives the last word to the economist Trevon Logan: “Like many others, Baptist "continues to see the enslaved as a vehicle for his own need to tell us something new, even when it is not," Logan writes. "That, I believe, is the true shame about the historiography of slavery."”


If you are a historian or simply someone interested in history. Read Beckert and Baptist, but also read Rhode and Olmstead, and Logan. Read them all carefully and critically. If you are persuaded by, for instance, Ed Baptist's calculation of the quantitative impact of slavery (page 321-22 of The Half), please tell me what you found persuasive about it.  

Friday, December 2, 2016

Pope Francis and Economics

The latest issue of the Independent Review is devoted to consideration of the relationship between Pope Francis and economics. The Introduction is by Robert Whaples. He is a good economic historian, and I hope that I am being fair to his argument.  That said, I do take issue with at least part of the argument. Specifically, he states that “It is clear that Pope Francis and many in the economics profession do not see eye to eye at a fundamental level.” He then proceeds to argue that Pope Francis’s views are inconsistent with fundamental assumptions of economic theory. To make the point clear he refers to the description of the assumptions about consumer behavior in Pindyck and Rubinfled’s microeconomics text :“[C]onsumers always prefer more of any good to less . . . [and] are never satisfied or satiated; more is always better, even if just a little better. (Pindyck and Rubinfeld 2005, 66)" He points out that this assumption is also known as “nonsatiation.”

Whaples then argues that the assumption of non-satiation gives rise to a fundamental difference between economists and Pope Francis:
“As shown earlier, Pope Francis’s view of the world is that one of these foundational assumptions is assuredly invalid. This simply isn’t how God made people. Christianity holds that God made man in His own image. In many cases, this relationship can make man capable of the rationality that goes into the first two assumptions about consumer choice—that preferences are complete and transitive—but the third assumption is fundamentally flawed, says Francis. More material possessions and greater consumption aren’t always or even generally better. A consumer who never feels satisfied with his material life—who always wants more—is not on the path to God.”

Whaples argument, however, misconstrues both what economists do and what Pope Francis is trying to do. First, notice the difference between what Pindyck and Rubinfled say and what Whaples says. Pindyck and Rubinfeld assume that “[C]onsumers always prefer more of any good to less . . . [and] are never satisfied or satiated.” Whaples suggests that Francis believes that “More material possessions and greater consumption aren’t always or even generally better.” Whaples switched from “goods” to “material possessions” and “consumption.” A “good” in economic is anything that a person derives satisfaction (utility) from. A good does not have to be a material possession or something that is generally described as consumption. Whaples is perpetuating one of the most common misconceptions about economics: the belief that economists think people are only interested in their own material well-being, narrowly conceived. People who believe that economists think this way have suggested that voting for interest is inconsistent with economic theory because your vote will not affect the outcome of an election, and therefore will not affect your material well-being. But voting is just as consistent with economic theory as buying a new car. Economic theory does not say what you will or will not get utility from. You can get utility from buying a car, or voting, or going out to dinner, or praying, or buying a diamond ring, or giving to charity, or even from eating this. The things that give people satisfaction are usually the result of culture, personal history, and individual tendencies.

No matter what your preferences, however, you still face the fundamental problem of choice in the face of scarcity. I tell my students it doesn’t matter whether you are Donald Trump or Mother Teresa you have to make choices about how to allocate the resources you have. By the way, I used the Donald in the example long before the election. Even if you only seek to serve God you have time make choices about how to allocate your limited resources, especially time. Francis himself has to choose between time spent in prayer, time hearing confession, time celebrating Mass, time spent on writing encyclicals, time spent meeting with Bishops, and time spent on his many administrative duties as the head of the church.

If economic theory does not say what people want, what does it do? Economic theory says that if people derive satisfaction from something they are likely to do it more if the cost of doing it decreases and likely to do it less if the cost of doing it increases. What economists get out of their models of consumer behavior is predictions about how people will respond to changes in the constraints (things like income and the costs of goods). In models of rational utility maximizing behavior, people respond in predictable ways to changes in the constraints they face. Do people in the real world maximize behavior? I don’t know. I don’t care? I can’t observe their utility. I can observe changes in constraints, and I can observe changes in behavior, and I can assess the degree to which the changes in behavior are consistent with the predictions of the model. I can’t say whether some person will think that voting is a good, but I can predict if the cost of voting increases they are less likely to do it.

As an economist I take people’s preferences as they are. Personally, I may find attendance at stock car race to be more bad than good, but as an economist it is not my business to tell other people that they should not get utility from it. The fundamental difference between economists and the Pope is that telling people what they should want is an essential part of his job as Pope. The Pope is not taking preferences as given and trying to make predictions about behavior. I stated before that people’s preferences tend to come from culture, personal history, and individual tendencies. The Pope, as well as other religious leaders and many secular leaders, do not take people’s preferences as given. They want to shape those preferences. They try to persuade us that we should get satisfaction from one thing rather than another. They try to persuade us that we will be happier if we consume more prayer and charity rather than more cars and marble counter tops.


Ultimately, economists have no more business complaining about the Pope trying to persuade people that they will gain more satisfaction from consuming prayer, penance, and charity than they do complaining about Apple trying to persuade people that they will gain more satisfaction from a Mac than a PC. 

Thursday, November 3, 2016

Economic History Update

Eric Hilt has a new paper on “Economic History, Historical Analysis and the "New History of Capitalism."  He is presenting the paper at the Penn Economic History Forum. The paper reviews eleven books that have figured prominently in the New History of Capitalism. It summarizes many of the complaints that economic historians have made about these works but still makes a plea for increased dialogue between economic historians and historians of capitalism.

The Annual Meeting of the American Economic Association will have a session on Cliometrics in Historical Perspective: In Remembrance of  Robert Fogel and Douglas North (follow the link for abstracts of the papers):

A Cliometric Counterfactual: What If There Had Been Neither Fogel nor North?
Claude Diebolt
France National Centre for Scientific Research and University of Strasbourg
Michael Haupert
University of Wisconsin-La Crosse
What Fogel and North Got (Spectacularly) Right, and What They Got (Modestly) Wrong
Deirdre McCloskey
University of Illinois-Chicago
Douglass North, Cliometrics, and the New Institutional Economics: Continuity or Divergence?
Lee Alston
Indiana University and NBER
Cliometrics and Econometrics
Robert Margo
Boston University and NBER

Here are a couple of links related to Joel Mokyr’s most recent book A Culture of Growth: the Origins of the Modern Economy:

Here is review by Brad De Long

Here is an interview with Mokyr

Friday, October 21, 2016

Recent Capitalism and Slavery Stuff

The Junto has been hosting a weeklong series of posts about Slavery’s Capitalism. I blogged about the book here back in August. Part of the discussion in the comments section at the Junto has considered the use of terms like “essential.”

Speaking of “essential”, yesterday Dartmouth hosted what should have been a very interesting debate “Was Slavery Essential to Capitalism?” Doug Irwin was the moderator. Unfortunately, you had to be at Dartmouth to see it, but I heard from Irwin that the Chronicle of Higher Education planned to cover the debate. The participants were Alan Olmstead, Caitlin Rosenthal, Sven Beckert and Trevon Logan.


Speaking of Trevon Logan, I was re-reading his paper A Time (Not) Apart: A Lesson in Economic History from Cotton Picking Books, which I had assigned to my Economic History  class. For what it’s worth, I highly recommend the paper to economists and historians, as well as to people who aren’t economists or historians.

Tuesday, October 4, 2016

History of Capitalism at AHA

Here is an interesting session scheduled for the meeting of the American Historical Association. Abstracts of each paper can be seen by clicking on the paper title. I have read the first two papers and like them a lot. The Lamoreaux and Wallis paper applies the North, Wallis and Weingast framework of movement from limited access orders to open access orders to the United states by examining changes at the state level during the antebellum period. If you wish to read the paper, it can be found quite easily by searching google scholar. The Rhode and Olmstead paper is a pretty devastating critique of the sloppy quantitative analysis of some of the most prominent “New Historians of Capitalism,” especially Baptist and Beckert. Similar arguments have been made online by me, Pseudoerasmus, and others, but the Rhode and Olmstead paper is very thorough. I haven’t read the Rosenthal paper, which seeks to provide a definition of capitalism that is consistent with both wage labor and slavery. I am somewhat skeptical that capitalism can be a useful analytical concept. The term carries too much baggage. Nevertheless I look forward to reading her paper at some point in the future.


Perspectives on the New History of Capitalism
AHA Session 321
Sunday, January 8, 2017: 11:00 AM-12:30 PM
Centennial Ballroom B (Hyatt Regency Denver, Third Floor)

Chair:
William Summerhill, University of California, Los Angeles
Papers:
The “New History of Capitalism,” Cotton, and Slavery
Paul W. RhodeUniversity of MichiganAlan L. OlmsteadUniversity of California, Davis
States, Not Nation: The Sources of Political and Economic Development in the Early United States
Naomi R. LamoreauxYale UniversityJohn J. WallisUniversity of Maryland, College Park
Slavery, Capitalism, and Commodification
Caitlin RosenthalUniversity of California, Berkeley
Comment:
Eric Rauchway, University of California, Davis

Session Abstract
Research within what scholars have come to call the "New History of Capitalism" has revitalized interest in economic history among historians. This session provides an assessment of this work from diverse perspectives. One paper highlights significant problems in the interpretation of evidence in major studies within the New History of Capitalism that focus on slavery and the cotton economy. A second sheds new light on the critical role played by states in key changes that underpinned political and economic modernization in the antebellum era. And a third paper problematizes the scope of phenomena encompassed by capitalism, as the term is presently employed, in order to craft an operational definition that accommodates both wage labor and slavery in antebellum America. Taken together the papers identify pitfalls in both traditional and new interpretations of antebellum economy and polity, while pointing the way forward for historians who seek to undertake research on the fundamental economic and political issues of the era.


Monday, October 3, 2016

The 1894 Act to reduce taxation




Steven Weisman argues in the Washington Post that most people believe the tax rate they pay is fair, but worry that the rich don’t pay their fair share.  I just wanted to elaborate a bit on the history of the income tax.  Weisman writes about the introduction of an income tax during the Civil War and then states that
“The income tax disappeared when the war ended. But it returned on the eve of World War I, enabling President Woodrow Wilson to raise the marginal income tax rate to 70 percent. Wilson called paying taxes a “glorious privilege” and a way for the businesses profiting from military buildup to give back. Sen. Hiram Johnson of California even attacked “the skin-deep dollar patriotism” of those who favored war but opposed taxes on the wealthy.”

The tax did disappear when the war ended and did return on the eve of World War I, but that was the second time it had returned.  The first time was in the 1890s. I suspect it was an editorial decision to leave this episode out. Weisman has written a book about the history of the income tax and certainly knows about the events of the 1890s. Unlike him, I have no space constraint on my blog so I have room to recount the story of the Wilson-Gorman Act. If anyone wants the references for the information below see chapter seven of my book on the Farmers Loan and Trust Company.  
Generally referred to as the Wilson-Gorman Act, or simply the Wilson Act, the official name of the 1894 income tax legislation was "An act to reduce taxation, to provide revenue for the government, and for other purposes." The tax reduction referred to in the Act was a reduction in tariff rates. To make up for the reduction in tariff revenue, the Act imposed a two percent tax on incomes over $4,000. “The object,” the lawyer James C. Carter later explained, “was to redress in some degree the flagrant inequality by which the great mass of the people were made to furnish nearly all the revenue, and leave the very wealthy classes to furnish very little of it in comparison with their means.” 

In addition to being part of the wealthy classes, executives of trust, banking and insurance companies had additional reasons for opposing the new taxes. In addition to the individual income tax, the Act also imposed a two percent tax on the income of corporations. This tax alone would have raised considerable opposition, but the leaders of these particular financial firms were even more troubled that the Act exempted financial institutions organized on a mutual plan from the tax. They wanted to have the law ruled unconstitutional but, there were two obstacles to challenging the law in court. The first obstacle was that the Supreme Court had already rejected a challenge to the constitutionality of an income tax. The income tax imposed during the Civil War had been challenged and upheld.  The second obstacle was that §3224 of the United States Revised Statutes, declared that “No suit for restraining the assessment or collection of any tax shall be maintained in any court.”  Thus individuals and corporations subject to the tax could not directly oppose the collection of the tax through the courts. Only after they had paid the tax under protest could they mount a legal challenge.
William D. Guthrie, a partner in one of the most prominent legal firms in New York: Seward, Guthrie, Morawetz and Steele, believed that the first obstacle was really no obstacle at all. In his opinion, the previous decisions upholding income taxes were in error and, therefore, the Court was not bound by them. The second obstacle was a little more difficult, but Guthrie thought that there was a way around it as well. He believed that a “suit in equity, with the remedy of injunction, often affords the most prompt and satisfactory relief where property rights are involved.”  But to bring the case within equitable jurisdiction it was necessary to show that “there is no plain, adequate and complete remedy at law.”  An injunction could not be obtained simply by arguing the law was unconstitutional. “Before the aid of a court of equity can be invoked,” he explained, “it must appear that the enforcement of the tax would lead to a multiplicity of suits, or produce irreparable injury, or, where the property is real estate, would throw a cloud upon the title of the complaint, or that there is an element of fraud or breach of trust, or some other ground of equitable jurisdiction.”  He concluded that “if a trust company should be about to voluntarily comply with an unconstitutional tax law, and should decline to accede to the request of a shareholder asking the trustees to pay under protest and to contest the legality of the tax, a suit might be brought against the trustees to restrain them from violating their duty.”  The case would not technically be a case to prevent the collection of the tax but a case to prevent a corporation from violating its duty to its shareholders. Nevertheless, the Court would be forced to rule on the constitutionality of the tax.  Guthrie worked to initiate two cases based upon this plan, one with the Farmers’ Loan and Trust Company and the other with the Continental Trust Company.

The boards of trustees of both companies agreed to adopt a resolution “somewhat to the effect that while there is doubt about the constitutionality of the Act, they are not disposed to hamper the Government in collecting its revenue, and that they will, therefore, set aside from the profits of last year a sufficient amount to pay the income tax and will pay it when it becomes due.” After the announcement, Guthrie made a formal request on behalf of Charles Pollock that the company seek the advice of the courts or pay the tax under protest. Charles Pollock was a citizen of Boston and, since 1892, the owner of ten shares of stock in the Farmers’ Loan and Trust Company. The board of directors refused to comply with Pollock’s request and Guthrie filed a bill in equity on behalf of Pollock and all other similarly situated stockholders seeking to enjoin the Farmers’ Loan and Trust Company from paying the tax. The bill claimed that the tax was unconstitutional, that Farmers’ would violate its duty to its shareholders if it paid the tax voluntarily, and that great injustice would be done if the tax were paid. 

Newspapers throughout the country speculated as to who was ultimately footing the bill for the case: New York businessmen, the trust companies, or simply wealthy New Yorkers such as the Astors.  The speculations were largely correct.  Guthrie’s corporate clients were the ones funding the case. Essentially, the lawyers on both sides of the case were working for the trust companies.
Historians have tended to emphasize the personal income tax and the issue of whether or not it was a direct tax:  Article I, Section 8 of the Constitution requires that “Duties, Excises and Imposts, Shall be Uniform throughout the United States.”  Although the personal income tax has received the most attention, Guthrie and his team placed considerable emphasis on the tax on financial institutions and the issue of uniformity.  In Guthrie’s view, “Congress has no power, at the expense of others owning property of the same character, to foster and aid private trading corporations, such as building and loan associations, savings banks and mutual life, fire, marine, inland, and accident insurance companies or associations, which serve no national purpose or public interest whatsoever and which exist solely for the pecuniary profit of their members.” 

Justice Fuller delivered his opinion on April 8. The Court held the law to be invalid in so far as the tax on income from real estate was held to be a direct tax that was not apportioned among the states and the tax on municipal and state bonds impinged on the power of states to borrow. Fuller went on to observe, however, that many of the central issues of the case had not been settled. Justice Jackson had been absent and the remaining justices had not been able to arrive at a majority opinion on whether the entire income tax was unconstitutional. “Upon each of the other questions argued at the bar,” Justice Fuller noted, “the justices who heard the argument are equally divided, and, therefore, no opinion is expressed.”  Because of the importance of the unanswered questions, both sides asked for a rehearing before the full Court. In the meantime, Guthrie attempted to ready other challenges to the Act. Though he did not proceed with them after the application for a rehearing of the Pollock case was quickly accepted by the Court, and the rehearing was scheduled for May 6,7, and 8.
Counsel on both sides made essentially the same arguments they made at the original hearing. The decision of the Court was announced on May 20. The majority of the Court determined the income tax imposed in the law to be invalid. The vote was five to four with Fuller, Field, Brewer, Gray and Shiras in the majority and Harlan, Brown, Jackson and White dissenting  
The victory of the anti-tax forces in 1895 is generally regarded as a fleeting one. The Sixteenth Amendment (1913) allowed for direct taxes that were not apportioned among the states and Congress soon passed an income tax. But the view that Pollock v. Farmers’ Loan and Trust Co. lost its relevance with the passage of the Sixteenth Amendment arises from a tendency to focus solely on the second hearing of Pollock v. Farmers’ Loan and Trust Co. and the issue of the personal income tax. The opinions in both the first and the second hearing of the case contained other rulings on taxation. In both opinions, the Court ruled that the federal government could not tax the bonds of states and municipalities.


Some feared that the Sixteenth Amendment would overturn the exemption of state and municipal bonds. The wording of the Sixteenth Amendment was quite broad. “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without any regard to enumeration.” But it only overturned the portions of the Pollock opinion dealing with income. The exemption of income from state and municipal bonds expressed in Pollock was not explicitly overturned by the Supreme Court until 1988 in South Carolina v Baker.  Even then the Court did not reject Fuller’s logic in the Pollock case. Instead, it declared that the case law regarding intergovernmental relations had evolved.  Justice Brennan explained that “under the intergovernmental tax immunity jurisprudence prevailing at the time, Pollock did not represent a unique immunity limited to income derived from state bonds. Rather, Pollock merely represented one application of the more general rule that neither the Federal nor the State Governments could tax income an individual directly derived from any contract with another government.”  The rule applied to an employee’s income and rental income from a state government as well as interest payments on its bonds. Brennan went on to explain that ruling in Pollock no longer applied because this underlying rule had since been rejected. “The rationale underlying Pollock and the general immunity for government contract income,” he declared, “has been thoroughly repudiated by modern intergovernmental immunity case law.”   


By the way, if you were wondering about the picture, it is photograph of Guthrie's Long Island estate.

Tuesday, September 20, 2016

Are You For Real

I just received an email asking me to sign a statement by "Economists Concerned About Hilary Clinton's Economic Policies." I'm thinking it must be a joke. At the bottom it states that its mailing address is 725 Fifth Avenue, which is the location of Rump Tower. Surely, it must be a joke.

If someone wanted me to sign a statement by "Human Beings Concerned by Pretty Much Every Word That Comes Out of Trumps Mouth" I would happily sign that.

I can't imagine how someone could listen to Trump and be concerned about Clinton's economic policies. Trump talks about defaulting on the national debt, like he has defaulted on so much of his own debt. Of course he can't do this for a while because he will need to borrow a lot to pay for his ridiculous tax and spending "plan."

I have to admit even if I thought his economic plans made sense, and even if I believed that a man who can't open his mouth without a lie coming out would follow through on them, I would not vote for him.

A man who says he will use torture should not be president.

A man who says he will kill the wives and children of suspected terrorists should not be president.

A man who says that he will discriminate against people based on their religion should not be president.

A man who says he will torture people should not be president.

A man who disrespects POWs and the families of people who gave their lives in service of their country should not be president.

A man who could only take the oath of office by lying should not be president.

These are the actions of an evil man. You con't elect an evil man and still be a good country.

How can you worry about Obamacare, or Clinton's tax policies when there is so much more at stake. Obamacare and higher taxes on the wealthy will not ruin the country. Trump will.

By the way, I did not sign the statement.