In a message dated 1/11/03 8:53:20 PM, [EMAIL PROTECTED] writes: << --- [EMAIL PROTECTED] wrote: > I don't see how too much capital could cause a recession,
<<Too much financial capital, i.e. money, can cause a recession, by artifically lowering the interest rate, inducing excessive investment of those capital goods for which only a low rate of interest is profitable. Since intended consumption has not changed, consumers compete with investors for goods, driving up prices. The capital goods turn out to be unprofitable investments, and the diminution of investment leads to a downturn. Fred Foldvary>> This is standard Austrian business-cycle theory, which is why I said that too much borrowed capital can cause a recession. It also works under standard monetarist theory, with too much money driving up the general level of prices, causing a false boom, which then collapses into recession after peopel figure out that only nominal, not real, aggregate demand has risen. > or indeed how it's possible to have too much capital. <<There can be too much real capital invested in particular types of capital goods.>> Sure, because people aren't perfect prognosticators. To cause a recession, however, wouldn't such misinvestment have to be systemic? What would cause such systemic misinvestment--everyone making large mistakes at the same time--beyond government manipulation of the money supply? > I've never heard a good reason advanced for taxing > someone's income twice, <<Is there a good reason for taxing income once?>> I thought about that when I wrote the comment, but let is pass. Having just been criticized on the list for sounding too libertarain, I thought I'd try to tone down my comments in that regard by not arguing against single taxation of income. :) > income tax law under the 16th Amendment (which incidentally wasn't the first constitutional federal income tax, contrary to popular view)< <<Since prior federal income taxes were not proportional to states' population, how were they constitutional? Fred Foldvary >> In the 1796 Hylton case the Supreme Court accepted Hamilton's view that the only direct taxes are the poll tax (a tax on heads, not on voting), and taxes on real property and slaves constituted direct taxes. Taxes on other items were indirect. (They didn't use the current distinction that economists often use of direct taxes refering to taxes which the taxpayer pays directly to the government.) Thus the Supreme Court upheld the constitutionality of the Civil War federal income and inheritance taxes in the Springer (1864) and Scholey (1881) cases. When Congress passed another income tax law in 1894, the Supreme Court in its first hearing of the Pollock case (with only 8 justices present) overturned the Hylton precedent and held that taxing income from property was the same as taxing the property itself, and that taxing income from real property was the same as taxing the real property itself, and therefore that an income tax on real estate income was a direct tax. They struck down only the provison of the income tax law taxing income from real estate. When they reheard the case (with all nine justices) they held that taxing personal property was also a direct tax and that taxing income from tangible personal property was also therefore a direct tax. Having disabled so much of the tax law, the struck down the whole law under an old judicial doctrine designed to prevent courts from creating odd little rump laws out of laws they disembowel. Even under the final Pollock ruling, the court left Congress with the power to tax incomes from wages and salaries, as well as from intangible personal property (stocks, bonds, patents, copyrights, etc.) After Pollock the Supreme Court upheld the 1898 tax on gross incomes from sugar and oil refining and on all corporate income. For more information, please see my 1999 article in Reason magazine at http://reason.com/9901/co.dl.constitutional.shtml David Levensam
