In a conventional, capitalist society, large fortunes tend to maintain themselves.
Is that statement true? And if so, does it suggest a social trade-off? I think both.
Of course, not all fortunes continue from generation to generation. My father often quoted me the old saying, ``Shirt sleeves to shirt sleeves in three generations.'' The assertion contradicts the old saying, in general if not in particular. Its claim is that if parents can pass fortunes on to their children, most of the children will, more or less, be able to pass on similar sized fortunes.
In this context, `fortune' means wealth valued at more than ten or one hundred million US dollars. A plain `million' no longer counts.
The political question concerns estate taxes, that is to say, taxes on the estates of the dead. These taxes are not relevant for ordinary people, not even for people owning small businesses, since the minimum size of an estate is larger than their fortunes.
(As an aside, let me note that a government can obtain revenue by taxing smaller estates. That has nothing to do with the social question; it is simply a method of raising taxes. It is as irrelevant as the claim I have heard from some politicians that people whose incomes are US$300,000 per year — please note that I said income, not wealth — are `typical middle class' rather than quite rich by contemporary US standards.)
Presuming the underlying statement about fortunes is correct, then:
All this becomes more relevant as we consider Philip Bobbitt's claim that the next major political argument will be over the ways in which governments provide opportunity. In his long and hard to read book, The Shield of Achilles 1 Philip Bobbitt argues, controversially, that
A great epochal war has just ended [the war lasted from 1914 to 1990]. The various competing systems of the contemporary nation-state (fascism, communism, parliamentarianism) that fought that war all took their legitimacy from the promise to better the material welfare of their citizens. The [newly emerging] market-state offers a different covenant: it will maximize the opportunity of its people. ....
A society of market-states ... will be good at setting up markets. This facility could bring about an international system that rewards peaceful states and stimulates opportunity in education, productivity, investment, environmental protection, and public health by sharing the technologies that are crucial to advance in these areas. .... Markets, on the other hand, are not very good at assuring political representation or giving equal voice to every group. ....
So, if large fortunes tend to maintain themselves over generations in conventional, capitalist countries, unless some action is taken to hinder them, and if Bobbitt is correct, then you must favor estate taxes if you believe in opportunity.
The counter-argument is that for the foreseeable future, technological opportunities will overcome the freezing effects of oligopoly or monopoly. Thus, Henry Ford and others made huge fortunes last century in cars. Individuals cannot do that in the automobile industry any more. But they can make a fortune in some other field, such as bio-engineering.
This counter-argument depends on a belief that innovation will continue, that it will not suffer from the side effects of attempts to limit an area through copyright and patent extensions or through a law such as the DMCA. I am not sure that belief is true.
As a practical matter of business, when laws hinder innovation, many organizations tend to work and rework what they already possess rather than attempt to make use of innovations from outside. Reworking requires less hassle. It costs less.
Of course, not every organization attempts to reduce its short term costs; nor does every country. But with hindrances, it is more difficult to advance. Certainly, that is a lesson learned from history and anthropology: countries that restricted development, developed less; and societies that failed to value learning and innovation stayed behind.
So the question of estate taxes remains salient, at least to those who favor opportunity and progress.
The Shield of Achilles: War, Peace, and the Course of History,
Philip Bobbitt,
Random House, Knopf edition, 2002: ISBN 0-375-41292-1,
Random House, Anchor Books edition, 2003: ISBN 0-385-72138-2,
in the Prologue, page xxvi of the Anchor Books edition
Philip Bobbitt is Professor of Law, University of Texas at Austin; he has served as the director for Intelligence, senior director for Critical Infrastructure and senior director for Strategic Planning at the National Security Council.