48 THE WIDOW'S GIFT AND GRADUATED TAXATION And he looked up, and saw the rich men casting their gifts into the treasury. And he saw also a certain poor widow casting in thither two mites. And he said, Of a truth I say unto you, that this poor widow hath cast in more than they all: For all these have of their abundance cast in unto the offerings of God: but she of her penury hath cast in all the living that she had (Luke 21:1-4).
This passage rests on an assumption: God has the ability to make accurate interpersonal comparisons of subjective utility. Jesus announced His conclusion: the poor widow had given away more than the rich men had given collectively. They had given away only a small fraction of their wealth, but the widow had given all of her money. Jesus looked into their minds and hers, and He drew conclusions regarding comparative rates of sacrifice. His conclusion: giving away all the money that a person owns is a greater sacrifice than giving away only part of the money that a person owns.
Is this observation universally true? If it is, should civil governments adopt this principle to guide tax policy?
Interpersonal Comparisons of Subjective Utility In Chapter 13, I discussed the epistemological problem of making interpersonal comparisons of subjective utility. This is a major logical problem of all modern economic theory, which is grounded in epistemological subjectivism. The problem appears to have no solution in terms of the presuppositions of subjective economics. As I wrote, "The presumed inability of economists or anyone else to make scientifically valid interpersonal comparisons of subjective utility is a fundamental flaw of modern economic theory. Economists rarely discuss this problem because it has not been solved scientifically or philosophically. To get from the subjective utility scales of individuals to objective social utility is scientifically impossible, according to the logic of individualism. This strips economic theory of all relevance for social policy. But economists want to believe that what they teach can become relevant for social policy. So, they ignore this epistemological problem. They offer policy suggestions to politicians and bureaucrats as if it had been solved." If there is a solution, we have waited for over six decades for someone to offer it.
To make comparisons between two people's individual utilities, the evaluator has to assume that there is a common value scale between them. The evaluator must also be able to intuit this scale on the basis of introspection. This common value scale must exist in order for the assessment to be accurate. For example, if the widow had been a religious fanatic who believed that all money is cursed, her gift would not have constituted a great sacrifice. She was merely getting rid of something that would destroy her. In her opinion, she was exposing the recipients of her money to a curse. But, while the widow in theory could have been operating in terms of such a view of money, Jesus and His listeners assumed that she was basically like most people. Giving away her last coins was a major sacrifice on her part, evidence of her trust in God to supply her with additional money in the near future.
I wrote this in my conclusion to Chapter 13: "Modern subjectivist economic theory denies the existence of a common ethical standard, common tastes, or a common evaluator on the day of judgment. It affirms that each person is different. This destroys the concept of a common humanity. It therefore destroys the possibility of a common objective scale of values linking all men. This means that there can be no scientifically valid interpersonal comparisons of subjective utility. Nevertheless, we make such comparisons all the time. . . ." Jesus' comparison rested on the assumption of a common humanity with common values. He could not otherwise have compared accurately the collective value of the rich men's gifts with the widow's.
Grading Examinations Let me use an analogy based on classroom examinations and grading. Jesus graded the woman's performance in terms of her economic capacity. He did the same with her fellow students. He gave her a higher grade, even though her competitors received higher numerical scores.
A grading system that ignores everyone's numerical score and substitutes a teacher's subjective estimations of the intellectual capacity of each student would destroy the examination system because it would destroy the predictability of any relationship between performance and reward. The brighter students would conclude that no teacher is able to make such comparisons. They would regard the grading system as unfair, arbitrary, and therefore not worth studying for.
Yet, not only does this passage teach that God can make such comparisons, it assumes that other people can do this, too. Jesus would not have used this example to make His point regarding the sacrificial nature giving, had He not expected His listeners to understand Him and agree with Him.
This raises the issue of application. What did Jesus want His listeners, including us, to do with this information? I think most readers would agree with His point: the widow gave more sacrificially than the rich men did. She was putting her life at risk. What if she could not earn another coin? Where would her next meal come from? She was trusting God to care for her. Her trust was greater than the trust of the rich donors. By giving more sacrificially, Jesus said, she gave more, economically speaking.
But what can we legitimately do with this information? We can praise the widow. We can pray to God for comparable trust in Him and His care for His people, so that we can become more like the widow. We can also remind ourselves that the generosity of the rich does not impress God. But we cannot do much more than this.
We cannot run a business or a government or a church on such a principle of sacrificial giving. We surely cannot afford to sell new cars to poor widows who are willing to pay everything they own to buy one. We cannot legitimately establish a tax system that is based on the assumption that tax collectors can make interpersonal comparisons of everyone's subjective utility, as if they can know what the comparative psychological burden of each taxpayer is and assess an equal psychological burden for all taxpayers by assessing unequal numerical rates of taxation. We cannot run a church this way, because the church is governed by the principle of the tithe: a flat rate of ten percent.(1)
Then why did Jesus raise the question of the widow's gift?
Another Challenge to the Religious Leaders Immediately preceding His assessment of the donors' gifts, Jesus had announced: "Beware of the scribes, which desire to walk in long robes, and love greetings in the markets, and the highest seats in the synagogues, and the chief rooms at feasts; Which devour widows' houses, and for a shew make long prayers: the same shall receive greater damnation" (Luke 20:46-47). These men wanted public acclaim and approval. They were in fact thieves. They devoured widows' estates. They appeared to be righteous. They were not. They loved acclaim more than they loved justice.
Jesus was once again pulling them down from their lofty positions. Their damnation, He said, will be worse than the damnation handed out to common criminals. On judgment day, God will compare their lofty claims of righteousness with their actual performance. This is why they will be damned with greater pain. God expects more from those who have been given more information (Luke 12:47-48).(2)
With His assessment of the widow's two mites, Jesus made a judicial point. With respect to the final judgment, He said, God will hand out negative sanctions and positive sanctions, first, in terms of His knowledge of each person's innate capacities. Second, He will grade redeemed men in terms of what we did in history in relation to His holy law, which is written in their hearts (Heb. 8:10; 10:16). Third, He will judge Old Covenant saints in terms of what His revealed law said, although it was not written on their hearts. Fourth, He will judge covenant-breakers in terms of the work of the law written on their hearts (Rom. 2:15-16). Fifth, He will grade all men in terms of what they understood about their responsibilities and were capable of obeying. Being infinite, God can justly hand out final rewards and punishments in terms of an objective standard -- God's Bible-revealed law -- and also in terms of what men knew subjectively and what the did objectively in history.
No man can exercise such comprehensive, complex judgment in history. No earthly institution has been established by God with the covenantal, oath-bound authority to do this. Such a human institution would become arbitrary and corrupt very soon. Its defenders would be claiming its divinity, and by implication, the divinity of its employees acting collectively.
The Graduated Income Tax In 1912, A. C. Pigou's book appeared, Wealth and Welfare. He was a professor of economics at Cambridge University. In this book, and in his more famous Economics of Welfare (1920), he argued for higher rates of income taxation on the rich. He defended his recommendation by an appeal to subjective value theory.
The marginalist revolution of the 1870's by 1912 had led most economists to conclude that the subjective value to the individual of each additional unit of monetary income is worth less than the previous unit. He satisfies his highest remaining wants with each additional monetary unit; therefore, each additional unit is worth less to him, for it satisfies wants of reduced value. Then Pigou made a leap of faith. He said that an additional monetary unit in a rich man's income stream is worth less to him than an additional unit is worth to a poor man. The poor man will satisfy much higher-level wants with his additional monetary unit than the rich man will satisfy on his scale of wants.(3)
This sounds similar to Jesus' assessment of the widow's mite. The logic of Jesus' assessment rests on something like Pigou's comparisons. We recognize the truth of both. But there is this crucial difference: Jesus did not recommend any institutional policy on the basis of His assessment of the widow and the rich donors. Pigou did. Jesus was talking about God's final judgment and men's ability to understand today the righteousness of God's final judgment. He was not recommending that men delegate to civil government the authority to impose graduated taxes backed up by the threat of public sanctions. Jesus did not assume that tax collectors possess God's ability to make precise interpersonal comparisons of individuals' subjective utilities, or His own ability to make precise subjective assessments of other men's actions in relation to their varying individual capacities to understand and obey His objective law.
Pigou was implicitly asserting that tax policy should be formulated in terms of an assumption, namely, that tax collectors have the ability to mimic God's final judgment, including the imposition of negative sanctions for anyone's failure to pay taxes. This was exactly what politicians wanted to hear. The income tax was imposed in England in 1911. It was about to be voted on in the United States in 1912.(4)
Pigou's message was what economists wanted to hear, too. They wanted to believe that they, as neutral scientists, possess the ability to make such comparisons accurately and then advise politicians regarding the socially optimum rates of graduated taxation. This unique scientific ability makes economists indispensable in setting public policy.
It may have seemed as though Pigou was a disinterested scholar. He was anything but disinterested. He was a secret admirer of the Bolsheviks. He had been corresponding with various Bolshevik leaders in exile as early as 1905.(5) In the 1920's, he secretly recommended to the Soviet spy apparatus operating in England the names of businessmen who might engage in Soviet trade. The businessmen had no idea he had suggested them.(6) In 1937, he wrote the following: "If, then, it were in the writer's power to direct his country's destiny, he would accept, for the time being, the general structure of capitalism; but he would modify it gradually. He would use the weapon of graduated death duties and graduated income tax, not merely as instruments of revenue, but with the deliberate purpose of diminishing the glaring inequalities of fortune and opportunity which deface our present civilization. He would take a leaf from the book of Soviet Russia and remember that the most important investment of all is investment in the health, intelligence and character of the people."(7) When Pigou spoke of graduated income taxation as a weapon, he spoke correctly. In the Manifesto of the Communist Party (1848), Marx and Engels recommended a system of graduated income taxation as step two of ten steps to move a nation into socialism.(8) Pigou was following the Party Line, but with a more sophisticated argument.
In 1935, Lionel Robbins offered his critique of the use of the concept of declining marginal utility to justify graduated income taxes. He said that it is impossible for economists to make scientifically valid interpersonal comparisons of subjective utility.(9) He was correct. The problem was, this denial also applied to all known examples of social policy. This means that economists, as scientists, must stay silent regarding the costs and benefits of any public policy. Roy Harrod made this point in response to Robbins in an essay in the Economic Journal in 1938. In a 1939 response, Robbins backed away from his sweeping statement regarding the limits of economics in policy-making. He did not explain why his earlier argument had been wrong. He merely affirmed the ability of economists to make some policy recommendations. So, the debate ended. Graduated income taxation is with us still, and most economists seem content with it in principle.
The Bible lays down the principle of the tithe: a flat tax imposed by God on His people for the support of the institutional church. No church enforces this on its voting members. No church has a separate category of membership -- voting members -- which mandates the tithe. God imposes the requirement, but churches have not dared to enforce it. The tithe has become a matter of conscience.
What is true of the modern church is not true of the modern State. The modern State mandates different rates of taxation according to income levels. It does so in the name of social justice or fairness. Rich people are supposed to pay their "fair share." Their fair share is always officially higher -- before technical loopholes are quietly inserted into the tax code -- than the tax rates imposed on a majority of the voters by the politicians.
Conclusion When the widow donated every coin that she had, she sacrificed a great deal. Her gift was more impressive as a token of her faith than the larger gifts made by rich men. Jesus used this example to make a point: God is not greatly impressed by gifts from the rich. He is also not greatly impressed by rich scribes who steal from widows.
The fact that the widow gave more, in the sense of having trusted God more, is not to become the basis of a graduated taxation scheme. Jesus did not say that the officials of the State can accurately make interpersonal comparisons of subjective utility. Every piece of legislation is based on some view of benefits and losses to members of society, which means that there is a vague way to assess broadly a society's social utility, but any suggestion that policy-makers can perceive fine distinctions of men's comparative assessments of value is fraudulent.
To protect church members from guilt manipulation or actual extortion for receiving the sacraments, God established the limit of the tithe. He also revealed to Israel that a level of civil taxation as high as the tithe is tyranny (I Sam. 8:15, 17). So, the suggestion that the ability of people to make broad comparisons of subjective utility cannot be used legitimately to justify a scientific case for graduated taxation or graduated tithing.
Footnotes:
1. Gary North, Tithing and the Church (Tyler, Texas: Institute for Christian Economics, 1994).
2. See Chapter 27, above.
3. A. C. Pigou, The Economics of Welfare (4th ed.; London: Macmillan, 1932), pp. 89-91.
4. The imposition of an income tax by the United States government required a Constitutional amendment. The 16th amendment was voted on in 1912. It did not pass, according to the legal requirements governing amendments. Thirty-six of the 48 states had to ratify it to amend the Constitution. At least 16 states did not ratify it, or did not ratify it properly. But the U.S. government announced that it had passed, and in 1913, the government levied a graduated income tax. On the failure of the amendment to pass, see R. W. Beckman and W. Benson, The Law That Never Was, 2 vols. (South Holland, Illinois: Constitutional Research Associates, 1985, 1986).
5. John Costello, Mask of Treachery (New York: Morrow, 1988), p. 646n. He cites Richard Deacon, The British Connection (London: Hasmish Hamilton, 1979), pp. 66-67.
6. Ibid., pp. 170-71.
7. A. C. Pigou, Socialism Versus Capitalism (London: Macmillan, 1937), pp. 137-38.
8. Karl Marx and Friedrich Engels, Manifesto of the Communist Party (1848), end of Part II.
9. Lionel Robbins, An Essay on the Nature & Significance of Economic Science (2nd ed.; London: Macmillan, 1935), pp. 136-41.
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