Vogel 1988

THE JUSTIFICATION FOR TAXATION:
A FORGOTTEN QUESTION
BY KLAUS VOGEL*
I. THE SECRET TAX REVOLT
THE TIME IS RIGHT TO reconsider how taxation can be justified. To-
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day's jurisprudence, public finance, and political philosophy do not
seem to devote particular attention to the question; they rarely deal
with it. The treatise on public finance by Richard Musgrave, currently
the most respected one in international circles, discusses the two
historically most important theories for justifying taxation, the benefit
and sacrifice theories (Musgrave refers to the latter as the ability to
pay principle), almost exclusively as standards for distribution of the
tax burden.1 The treatise mentions the issue of justification for taxa-
tion only briefly;2 in the more recent version of the text on public finance
co-authored by Richard and Peggy Musgrave it is not mentioned at
all.3 In "A Theory of Justice," John Rawls sees taxes only as a means
of redistribution which is much to narrow.4 He concludes that taxa-
tion is justified simply because it promotes distributive justice. This,
however, is not convincing because Rawls does not consider all the
various functions and implications of taxes. Legal discussion in the
past few decades, it is true, has made important contributions to the
* The core of this paper was written while doing research as a visiting scholar
at Harvard Law School's International Tax Program during the fall term of 1985.
The author has tried to combine what he could acquire during that time jointly of
American and of German legal scholarship. He wishes to express his gratitude to Har-
vard Law School for being permitted to use its invaluable research facilities. The author
moreover gratefully acknowledges the important assistance given to him by Harry A.
Shannon, III in translating the article into English.—A German version of the paper
has meanwhile been published in 25 Der Staat (1986) 481.
1. Musgrave, R., The Theory of Public Finance, A Study in Public Economy
(1959), p. 61.
2. Ibid., p. 62.
3. Musgrave, R. & Musgrave, P., Public Finance in Theory and Practice, 4th
ed. (1984), p. 227.
4. Rawls, A Theory of Justice (1971), p. 279. James M. Buchanan has shown
that even a contractarian argumentation assuming a "veil of ignorance" (similar to
Rawls) leads or may lead to postulating constitutional limits on the legislator's power
to redistribute. See Buchanan, "Coercive Taxation in Constitutional Contract,"
prepared for Liberty Fund Conference, Santa Fe, September 1985.
19
20 THE AMERICAN JOURNAL OF JURISPRUDENCE (1988)
problems of justice in taxation, the ability to pay principle, and the
limitations to tax jurisdiction through constitutional rights.5 Yet on
the whole this discussion has focused only on the distribution of the
tax burden, not on the basis of that burden. As far as the justification
for tax liability per se is concerned, the answers formulated 100 years
ago or more apparently still are considered sufficient.
Unfortunately, this line of reasoning cannot be accepted. At the turn
of the century when the question how taxation could be justified was

filed away as resolved, the maximum income tax rate for example in
Prussia (which at that time had the most advanced income tax legisla-
tion of continental Europe) was only 4%. Local tax liability increased
this rate by no more than an additional 4% in most cases.6 Employee
liability for State-provided health insurance in Germany rose to a max-
imum of 2% of the prevailing local daily wage and the State disability
insurance premium for the highest wage class was limited to 36 Pfen-
nige per week.7 In contrast, today in the Federal Republic of Germany,
even for an average worker, more than 50% of each pay raise is
skimmed off by taxes and social security contributions.8 The State's
5. Regarding literature on tax justice in Germany, see, Tipke, Steuergerechtigkeit

in Theorie und Praxis (1981); Tipke, Steuerrecht, Ein systematischer Grundriss, 12th
ed. (1987); Walz, Steuergerechtigkeit und Rechtsanwendung (1980). Regarding the prin-
ciple of "ability to pay," see Lang, Systematisierung der Steuervergunstigungen,
Schriften zum Steuerrecht, Bd. 11 (1974); Birk, Das Leistungsfdhigkeitsprinzip als
Masstab der Steuernormen (1983); Kirchhof, "Der verfassungsrechtliche Auftrag zur
Besteuerung der finanziellen Leistungsfahigkeit," Steuer und Wirtschaft (1985), p. 319.
Regarding the importance of the "Basic Rights," see Kirchhof & von Arnim,
Besteuerung und Eigentum, Veroffentlichungen der Vereinigung der Deutschen Staat-
srechtslehrer, Vol. 39 (1981), pp. 213, 286. See also Vogel, "Steuergerechtigkeit und
soziale Gestaltung," Deutsche Steuer-Zeitung (A) (1975), p. 409; Vogel, "Die
Abschichtung von Rechtsfolgen im Steuerrecht,'" Steuer und Wirtschaft (1977), p. 97;
Vogel, "Lenkungssteuern und Eigentumsgarantie," Bayerische Verwaltungsblatter
(1980), p. 523. In the United States questions of tax justice have been discussed by
Warren, "Would a Consumption Tax Be Fairer Than an Income Tax?" 89 Yale Law
Review (1979/80), p. 1081.
6. The highest effective tax rate (the rate actually paid on each incremental unit
of taxable income) under the Prussian income tax law was 4% and applied to incomes
beginning at approximately 100,000 Marks. The marginal tax rate varied to a max-
imum of 5%; for incomes in excess of 100,000 Marks, the marginal rate was 4%.
See Preussisches Einkommensteuergesetz vom 24.6.1891, § 17, Gesetzessammlung (1891),
at 175. Additions to tax in excess of the full rate under the income tax could be levied
at the local level only "for special reasons." See Kommunalabgabengesetz vom
14.7.1893, § 55, Gesetzessammlung (1893), at 152.
7. See Krankenversicheruungsgesetz i.d.F. vom 10.4.1892, §§ 9, 10, Reichsgesetz-
blatt (1892), p. 417; Invalidenversicherungsgesetz i.d.F. vom 19.7.1899, § 32,
Reichsgesetzblatt (1899), p. 463.
8. Ifo-Institut fur Wirtschaftsforschung, Schnelldienst, Vol. 36, No. 8 (1983), p. 6.
KLAUS VOGEL 21
portion of the net national product at factor costs ("national income")
in Germany was 13.9% in 1900;' today 50% or more of the national
product flows into the public budget.10 In other countries public levies
have developed more or less in a similar way. It should be evident
that in view of these changes the answers from the turn of the century
no longer can be accepted without additional review.
It should not be neglected, moreover, that for the general popula-
tion of taxpayers the unlimited right of the State to levy taxes apparently

is not so self-evident as it appears to be for politicans, for tax admin-
istrators, and for tax theorists. The general, more critical attitude is
expressed in part by active political tax boycott movements, as have
occurred in France under Poujade and in Denmark under Glistrup,
or in movements such as the American "tax revolt" of the late 1970's
which sought to introduce maximum limits for taxation through con-
stitutional amendments." Even more disconcerting—and internationally
much more widespread—however, is what might be called a "secret
tax revolt," the attempt of taxpayers to escape on an individual basis
from a tax burden they perceive as oppressive. This "secret tax revolt"
includes attempts to reduce the individual tax burden legally through
sophisticated tax planning,12 or to withdraw into the grey areas of the
shadow economy.13 It also includes concealment of items of income
9. See Recktenwald, "Umfang undStruktur der offentlichen Ausgaben in sdkularer

Entwicklung," in Handbuch der Finanzwissenschaft, 3rd ed., Vol. 1 (1977), pp. 713,
719.
10. In 1983 national income in Germany totaled 1,280.6 Billion DM. Government
expenditures totaled 848.9 Billion DM, or 66.28% of national income. See Statistisches
Jahrbuch (1985). More frequently cited in the German literature is the "Staatsquote"
(State quota), total government expenditures expressed as a percentage of GNP. In
1983 the State quota in Germany was 50.2%.
11. This has been successful in several states in the United States. See Musgrave,
R. & Musgrave, P., note 3 above, p. 124; Rabushka & Ryan, The Tax Revolt (1982);
Folkers, Die Begrenzung von Steuern und Staatsausgaben in den USA (1983); Vogel,
" Verfassungsgrenzen fur Steuern und Staatsausgaben," in Festschrift fiir Theodor
Maunz (1981), p. 419.
12. See Vogel, "Perfektionismus im Steuerrecht," in Institut der Wirtschaftspriifer
e.V., Bericht iiber die Fachtagung 1980, (1980), p. 155; reprinted in Steuer und Wirt-
schaft (1980), pp. 206, 208.
13. The development of an underground economy of considerable scope and the
inquiry into its causes as well as into its meaning for economic policy have been discussed
extensively in Germany for the past few years. For an overview of this literature see
Gretschman, Heinze & Mettelseifen (ed.), Schattenwirtschaft (1984); Langfeldt, Die
Schattenwirtschaft in der Bundesrepublik Deutschland, Kieler Studien (1984), p. 191;
Schafer (ed.), Schattenokonomie (1984); Schmidt, K., Verlockungen und Gefahren
der Schattenwirtschaft, Rheinisch-Westfalische Akademie der Wissenschaften, Vortrage
Nr. 314 (1982). See also Frey & Pommerehne, "Quantitative Erfassung der Schatten-
wirtschaft, Methoden und Ergebnisse," in Staatsfmanzierung im Wandel, Schriften
or of circumstances that would generate or increase tax liability in clear
and direct violation of the law. A normal, responsible citizen quite
naturally will not steal, even when there is no risk of being exposed.
Today, however, he often will not hesitate—or easily dismiss such
hesitation—to conceal taxable transactions if he feels certain that the
tax authorities will not become aware of them. This is disturbing. It
shows that the ethical convictions of the average citizen and those of
the legislators—as well as prevalent opinion in contemporary

jurisprudence, public finance, and political philosophy—no longer coin-
cide.14 Even if a citizen accepts the fact that taxes are necessary in
general, he nevertheless appears no longer to be convinced of the moral
justification of taxation at current levels. It has become necessary,
therefore, to investigate whether there are limits of taxation, and where.
Before that question can be taken up, however, the underlying ques-
tion of how taxes can be justified in general needs to be answered.
The doubt concerning contemporary tax legislation is emphasized
pointedly in Robert Nozick's thesis that taxation of income from
labor—the most important revenue source in many States
today15—cannot be distinguished in substance from forced labor.16 In-
deed, the effect of current income tax legislation can be described as
requiring those who work for compensation to perform a part of this
work, often 50% or more, for the State, that is for public needs. Nozick
realizes of course that the tax laws do not force anyone to work. Those
who can afford to live at leisure are certainly free to continue to do
so; it is precisely this aspect that Nozick considers unjust.17 Whether
one is inclined to agree with his view or not—Nozick's analysis is not
especially penetrating—the description of taxation as "work for the
State" at least should arouse our consciousness to the fact that taxa-
des Vereinsfur Sozialpolitik, New Series Vol. 134 (1983), p. 265; Bodelt, "Korreferat:
Schattenwirtschaft als Folge der Abgabenbelastung oder Ausdruck wirtschaftlichen
Strukturwandels," ibid., p. 295.
14. This does not necessarily mean that there is a crisis regarding legitimization
of "the system," as has been argued, e.g., in O'Connor, The Fiscal Crisis of the
State (1973). Pre-established convictions together with the continuously unfulfilled Marx-
ist expectation of parousia inhibit these author's ability for sober analysis and proof.
15. In the Federal Republic of Germany 1983 the revenue generated by the
withholding tax on wages was 140.5 Billion DM. This compares with 21.9 Billion DM
raised through direct assessment of the individual income tax; 22.0 Billion DM raised
through the corporate income tax; 59.2 Billion raised through the Value Added Tax,
and 45.0 Billion DM raised through the Value Added Tax on imports. See
Bundesministerium der Finanzen, Finanzbericht 1984 (1984), p. 206.
16. Nozick, Anarchy, State, and Utopia (1974), p. 169.
17. Ibid., p. 170.
KLAUS VOGEL 23
tion is an encroachment on personal liberty and that its justification
is by no means self-evident. This applies to taxes on income from
employment no more and no less than to other taxes. While it is true
that even forced labor may be justified by prevailing interests of the
general public, whether this is so must be determined for each partic-
ular case independently. If a legislature imposes forced labor, it must
offer sufficient reasons justifying such a decision. "To justify" means
to make just that which is unjust (as in theology) or to show to be

just that which appears to be unjust (as in ordinary usage and especially
in jurisprudence). In the present context, the taking of money, time,
and labor requires justification. Whereas in the past the question of
justification for taxation focused initially on whether taxation is
justifiable as such and later on what standards for tax rates follow
from this justification, the emphasis today, as set out above, should
lie on the limits within which taxation remains justifiable.
The justification sought is one of political philosophy based on moral
criteria. The question of how taxes may be justified is fundamental
for both tax law and fiscal policy. It assumes, as European as well
as American philosophy always has tended to assume, that scientific
agreement concerning moral questions is possible and that a consensus
regarding such questions can be reached.18 There may be reasons to
believe that the realm of moral phenomena is only partially accessible
to reason and therefore can be expressed in terms of norms and con-
cepts only in an imperfect manner. This problem, however, goes beyond
the present investigation.
The question of the limits within which taxation is justifiable is not
only of theoretical importance. It is certainly a concern for the legislature
and for economists and lawyers in their capacities as advisors to the
legislature. Moreover, the practicing lawyer, too, cannot avoid the issue
of the justification for a law because interpretation and application
of law, no less than its actual promulgation, being aspects of human
action are governed by moral requirements. In other words, if a State-
imposed burden is not justifiable morally, the lawyer is called upon
to reexamine thoroughly whether he has interpreted the law correctly
and, if he has, whether the burden in question is inconsistent with con-
18. Discusion of moral questions cannot be deferred until all epistemological prere-
quisites are established to the satisfaction of all concerned. See Pogge, Kant, Rawls
and Global Justice, Dissertation, Harvard (1983). For two newer attempts to establish
a basis for a philosophical justification of the possibility of inter-subjective statements
about moral questions, see Rawls, note 4 above and Habermas, " Wahrheitstheorien,"
in Fahrenbach (ed.) Wirklichkeit und Reflexion (1973), pp. 221, 238.
stitutional principles. Finally, for the economist the question of justifica-
tion for taxation is important at least to the extent he is concerned
not only with descriptive (positivist) results, but, as has been common
in public finance, also with prescriptive (normative) statements. Be-
tween lawyers and economists, therefore, the interest for the question,
is joint, or it should be so.
II. MAJOR THEORIES FOR THE JUSTIFICATION CONCERNING TAXATION

IN THE PAST SIX CENTURIES."
Both the older and newer descriptions of the traditional theories for
the justification for taxation frequently limit themselves to emphasiz-
ing two fundamental directions, the equivalence or benefit theory on
the one hand and the sacrifice or ability to pay theory on the other.20
In both cases it would be more accurate to speak of a group of theories.
Moreover, the distinction is too narrow, it does not account adequately
for the variety of theories and their historical development.21 Even if
time periods are assigned rather roughly (and numerous details
neglected), the description should at least distinguish four distinct periods
of development, to which the contemporary literature may be added
as an additional fifth period.
When the modern form of State government began to emerge in
Europe at the end of the 16th century,22 a sophisticated theory of
justification for taxation already existed.23 This theory, developed by
scholastic authors, can be traced back to Thomas Aquinas and is sum-
marized in an exemplary way in the work of the Spanish Theologian,
Francisco Suarez.24 It is based on the fundamental principle of Middle
19. Parts II and III of this article were written originally at the request of the
publishers of Hacienda y Derecho for the anniversary edition (No. 100) of that publica-
tion. I would like to make them available here for English-speaking readers.
20. See Seligman, Progressive Taxation in Theory and Practice, (2nd ed. 1908),
p. 129. Seligman also includes "socialist and compensatory theories."
21. In contrast the otherwise excellent work of Mann, F. K., Steuerpolitische Ideate
(1937), fails to recognize the unity in the diversity.
22. See Part III below.
23. In this regard as well as regarding the cameralist jurisprudence (Kameral-
jurisprudenz) that followed, see Wachenhausen, Staatsausgabe und offentliches In-
teresse in der Steuerrechtfertigungslehre des naturrechtlichen Rationalismus (1972), p.
68, which the analysis above follows.
24. See Suarez, Tractatus de legibus ac deo legislatore, Lib. V Cap. 13, 15 (1612).
Regarding Suarez, see Mesnard, L'essor de la philosophie politique au XVIe siecle,
2nd ed., (1952), p. 617; Rommen, Die Staatslehre des Franz Suarez S.T. (1926). Re-
garding Suarez' contribution to the establishment of modern public international law,
see Barcia Trelles, "Francisco Suarez, Les theologiens espagnols du XVIe Siecle et
l'ecole moderne du droit international," 43 Recueil des Cours de I'Academie de Droit
International de la Haye (1933 I), p. 385.
KLAUS VOGEL 25
Ages law according to which taxation was permissible only as an

emergency measure. Though the payment of taxes was obligatory, its
prerequisite—a case of emergency—had to be established from case
to case, and with regard to whether the necessary prerequisite existed,
taxation required an element of consensus.25 For scholastic philosophers,
consequently, a tax is a duty that relates to a particular purpose and
may be levied only in cases of extraordinary need.26 It is justified—
and limited—27 through the specific purpose for which it is levied. If

the need expires or the purpose is accomplished through other means,
the tax must be refunded28 or credited against other duties.29 Scholastic
literature provides a list of examples of permissible purposes for taxa-
tion, including funding military armament, the living expenses of the
sovereign, ransom of the sovereign from imprisonment, and the dowry
for his daughters. 30
Under the influence of the scholastics, German jurisprudence on
public finance in the seventeenth century (Kameraljurisprudenz) adopted
this theory of justification for taxation according to its purposes as
well as the specific examples of legitimate purposes listed above. Primary
proponents of this theory were Christoph Besold and Caspar Klock.31
It can be seen in Klock's works how taxation slowly began to evolve
from an extraordinary to a continuous levy.32 The very general require-
ment of "necessitas vel utilitas publica" (public necessity or utility)33
increasingly began to replace justification of taxation based on specific
purposes. These specific purposes, however, were retained as examples.
Moreover, the examples of expenditures that cannot be justified through
general interests, which the cameralist lawyers provide, clearly show
that the general requirement of public necessity at the time was not
yet intended to be just a meaningless phrase. 34
25. Regarding the earlier Middle Ages, see Brunner, Land und Herrschaft, 4th
ed. (1959), p. 273.
26. Suarez considers ongoing taxation to be permissible if the need to be satisfied
is a continuous one. See note 24 above, at Cap. XV, No. 6.
27. "Sequitur, quantitatem tributi non posse iuste excedere conditionem, seu in-
digentiam causae." Ibid., Cap. XV, No. 4.
28. Ibid., at No. 6.
29. Ibid., at No. 7. Ex post facto justification is also considered permissible here.
30. For citations see Wachenhausen, note 23 above, p. 85.
31. See Besold, De aerario publico discursus politicus (1615); Klock, Tractatus
nomico-politicus de contributionibus in romano germanico imperio (1634); ibid., Trac-
tatus juridico politico-polemico historicus de aerario (1655).
32. Cf. Mann, note 21 above, p. 42, in contrasting the works of Klock cited in
note 31 above.
33. See Wachenhausen, note 23 above, pp. 87, 89.
34. For example, unjust or irresponsible wars, but also unnecessary stabling of
horses. Ibid.
The emerging theory of social contract (which, of course, did not
immediately replace the Kameraljurisprudenz but coexisted with it for
a long period of time)35 differs from the views of the cameralist lawyers
in two respects. While the scholastics and the cameralist lawyers at-
tempted to justify taxation in each respective case, the social contract
theory seeks a justification for taxation in itself, and phrases this issue
in the context of the justification for the State. Social contract theory,
therefore, compared to its predecessors, formulates its questions and

answers from the outset on a higher level of abstraction. Moreover,
social contract theory defines the purpose of the State with respect
to the newly developed concept of the individual and, therefore, bases
the justification for taxation not on a general "public benefit" of the
tax, but on the benefit of the State for the individual. Bodin, who
still considered taxes to be permissible only in exceptional cases,36 saw
as their justification that "la tuition, et defense des particuliers, des-
pend de la conservation du public.'37 A similar view was held by
Grotius.38 It is on the writings of these authors that Hobbes is able
to base his thesis that taxes are "nothing more than the price of pur-
chasing peace" ("emtae pads pretium"),39 "the Wages, due to them
that hold the publique Sword, to defend private men in the exercise
of severall Trades and Callings."40 Similarly, Pufendorf describes taxes
as "merces quam singuli pendunt civitati pro defensione salutis ac
bonorem suorum,"41 and, three quarters of a century later, Montes-
quieu writes "les revenues de I'Etat sont une portion que chaque citoyen
donne de son bien pour avoir la surete de I'autre, ou pour en jouir
agreablement."42 Occasionally, the benefit of the State for the individual
is not seen solely in the defense of his person and property but also
in other governmental services. This is true for Adam Smith, for ex-
ample, who compares taxes with general management expenses paid
for through mutual contributions by the tenants of rural property.43
35. See Mann, note 21 above, p. 87.

36. See Bodin, Les six livres de la Republique, L. VI Ch. II. See also Mann, note
21 above, p. 40.
37. See Bodin, note 36 above.
38. See Grotius, De jure belli ac pads, Lib. II, Cap. II, § 14, Nr. 2 and Cap.
Ill, § 14 (1625).
39. See Hobbes, Elementa philosophica de cive, Cap. XIII, § 10 (1642).
40. See Hobbes, Leviathan, Part II, Chap. 30 (1651).
41. See Pufendorf, De jure naturae et gentium, Lib. VIII, Cap. 5, § 4 (1683).
42. See Montesquieu, De /'esprit des lois, L. XIII, Ch. 1 (1748).
43. See Smith, An Inquiry into the Nature and Causes of the Wealth of Nations,
Book V, Ch. II (1776). In another part of the same chapter—with respect to the first
principle of taxation—tax liability is, however, presented as relating to the State pro-
tection by means of which the citizen is enabled to enjoy the use of his income.
KLAUS VOGEL 27
As is known, some writers even equate taxes with insurance premiums,44

which in later times was welcome ammunition for criticizing the benefit
theory.
The 19th century turned against the social contract theory. In Ger-
many the philosophers and poets of the romantic era led the attack;
they developed the "organic" theory of the State. For those romantic
philosophers, the State is "not a mere manufacturer, steward, insurance
institution, or merchantilist association; it is the intimate union of all

physical and spiritual needs, of all physical and spiritual wealth and
of the entire internal and external life of a nation to a large, energetic,
perpetually changing and living whole." 45 In other words, the State
no longer stands in a service relationship to individuals, but rather con-
stitutes a higher and superior unity, " a large individual that encom-
passes all other small individuals,"46 the "Makroanthropos," 47 godlike.48
As a late heir of this view, Otto Mayer, founder of the modern Ger-
man theory of administrative law, wrote in the year of fate, 1914, that
the State may "sacrifice masses of individuals . . . for the future of
the historical greatness of the nation, which it is destined to shape." 49
It is self-evident that with respect to this sort of an earthly god, taxes
no longer can be a matter of consensual approval or mutual considera-
tion. "Only he who does not live in the State as a lover lives in his
beloved will complain about taxes," wrote Novalis.50 Gerhard Kaiser
has shown convincingly that these views resulted from the seculariza-
tion of certain theological notions and their application to the State. 51
44. See Thiers, De la Propriety (1848), p. 348; Girardin, L'Impdt, (1852), p. 249.
According to Seligman, note 20 above, p. 165, the first scholar to hold this view was
an Englishman, the Bishop of Llandaff. Seligman also quotes German authors who
held this view, including Faucher, Staats-und Communal-Budgets (1863), p. 204, and
Braun, Staats-und Gemeindesteuern, (1866), p. 9. These citations, unfortunately, can-
not be verified. That the benefit theory was supported as a principle of tax policy
by governments and legislators well into the second half of the nineteenth century,
in conflict with the views that had long become predominant in academic circles, is
described by Neumann, Die progressive Einkommensteuer im Staats-und Ge-
meindehaushalt, Schriften des Vereins fur Socialpolitik, Bd. 8 (1874), p. 46.
45. See Miiller, Adam, Die Elemente der Staatskunst, Zweite Vorlesung, p. 27.
46. Ibid., Neunte Vorlesung, p. 112.
47. See Novalis, Schriften, Vol. 2, p. 217 (cited in: Meinecke, Weltbiirgertum und
Nationalstaat (1962), p. 61.
48. See Novalis, note 47 above, p. 543 (cited in: Meinecke, note 47 above, p. 61).
49. See Mayer, Otto, Deutsches Verwaltungsrecht, 2nd ed., Vol. 2, (1914), p. 15.
The same observation appears also in the 3rd edition from 1924, but not in the 1st
edition from 1896.
50. See Novalis, Fragmente I, in: Wasmuth (ed.), Novalis, Werke, Briefe,
Dokumente (1953), p. 413.
51. See Kaiser, Pietismus und Patriotismus im literarischen Deutschland (1961).
The first author to base his arguments against the benefit theory
on these new views concerning the relationship between citizenship and
State was Karl Heinrich Rau.52 Rau's argumentation was only moderate
and he avoided the excesses of the Romantic philosophers. According
to him, the benefit theory "reduces the relationship between the citizen
and the State, which provides to each the conditions necessary for human
existence and development, to a multitude of individual relations."
He argued that such a reduction is "arbitrary and only possible to

a limited extent," that "the individual institutions of a State are only
various expressions of an organic whole, whose superior essence and
meaning is not recognized by such a dismemberment of its establish-
ments."53 Similarly, but without reliance on the romantic view of the
State, John Stuart Mill stated, "Government must be regarded as so
preeminently a concern of all, that to determine who is most interested
in it is of no real importance"; at best the totality of all taxes might
be considered as corresponding to all State services as a whole.54 In
this context, Mill adopts the term "sacrifice," which had been used
before in a very casual way by his predecessor, Jean-Batiste Say,55 in
discussing tax progressivity.56 In Mill's view a tax is equitable only if
the tax law levies an equal sacrifice on all citizens,57 as has been noted
above. A connection in this context between Mill's views and the roman-
tic philosophy in Germany cannot be assumed.58 Nevertheless, the word
"sacrifice" appeals strongly to romantic conceptions, even if uninten-
tionally: what term could better describe the mandatory gift to a per-
sonal god-State? Consequently, the word was adopted immediately.
Emphatically, the young Schmoller advocated the sacrifice theory.
To him the State is an "objective moral power, which transcends and
controls the individual existence."59 "Quite naturally," Schmoller states,
52. See Rau, "Grundsdtze der Finanzwissenschaft, Zweite Abtheilung," in:

Lehrbuch der Politischen Okonomie, Bd. 3, 2. Halfte (1837). In later editions the
reference appears in Abteilung 1.
53. Ibid., p. 10.
54. See Mill, Principles, of Political Economy, Vol. 2 (1848), p. 354.
55. Mill's father was a friend of Say and as a boy Mill spent time in Say's house.
See Ashley, Introduction, at V, VI, in: Mill, Principles (edition of 1909).
56. See Say, Traite d'EconomiePolitique, 4th ed., Vol. 2 (1819), p. 347. The term
is not used in earlier editions of the work. That it is in no way an anticipation of
the later sacrifice theory is inherent from Say's fundamental position, which is basically
adverse to taxation. Even where Adam Smith's basic principles of taxation apply, Say
considers taxation only "less bad."
57. Ibid., p. 352.
58. Though Mill was very receptive to romantic thought, as his article on Col-
eridge indicates. See Mill, Dissertations and Discussions.
59. See Schmoller, "Die Lehre vom Einkommen in ihrem Zusammenhang mit den
KLAUS VOGEL 29
"one side of taxation is to provide an advantage to the individual
through its use . . . . This side of taxation, however, is not exhaustive
or even controlling, for how could even the smallest sacrifice be ex-
plained in this way? And the State, which demands the blood of its
sons for the cause of the nation, certainly has the right, if necessary,
also to demand the sacrifice of the property of its citizens."60 Similarly,
Schaffle observes, "the State . . . does not draw its power from in-
dividuals, but rather individuals derive their legal determination and

obligations as members of a superior corporate personality united in
space and time. For . . . the State is 'as a whole, prior to the parts,'
and demands, therefore, sacrifices of its members for the whole, for
example through taxation."61 Based on these reasons, Schaffle, too,
expressly rejects taxation according to the benefit to the individual.62
For F.J. Neumann it is even a definitional presupposition of "public
interest" that it cannot be maintained on the basis of formal legal con-
sideration, but demands sacrifices." In the same vein, Vocke states,
"There is no choice of the individual to determine a certain considera-
tion for the sum of services rendered to the individual by the com-
munity. In contrast, every individual with everything he is and owns
belongs to the community."65 Finally, Adolph Wagner should be men-
tioned here; he, too, is a proponent of the organic theory of the State.66
Wagner, like his contemporaries, rejects the benefit theory as resulting
from the "older mechanistic-atomistic view of the State"67 and sees
Grundprinzipien der Steuerlehre," 19 Zeitschrift fiir die gesamte Staatswissenschaft

(1863), pp. 1, 46.
60. Ibid., 47.
61. See Schaffle, Das gesellschaftliche System der menschlichen Wirtschaft, 2nd
ed. (1867), p. 375.
62. Ibid., 399.
63. See Neumann, Die Steuer und das offentliche Interesse (1887), p. 207.
64. See Neumann, "Die Steuer nach der Steuerfdhigkeit," in 1 Jahrbuch fiir
Nationalokonomie und Statistik (1880), pp. 511, 531. Inherent in these statements is
the more pragmatic reason, which Neumann raises in his work on the progressive
income taxation, see note 39 above, for state taxation. He wrote, "Each day we see
new claims, new demands and wishes arise for <the State > . We see its scope, so
to speak, extend indefinitely. . . . And for this reason today the public hand requires
such revenues." That was written in 1874!
65. See Vocke, Die Abgaben, Auflagen und die Steuer vom Standpunkt der
Geschichte und der Sittlichkeit (1887), p. 174.
66. See Wagner, Finanzwissenschaft, 2. Teil, Theorie der Besteuerung,
Gebuhrenlehre und allgemeine Steuerlehre, 2nd ed. (1890), p. 30.
67. Ibid., p. 218. Wagner distinguishes strictly between the question of the justifica-
tion of tax liability and that of just distribution of the tax burden. Ibid., p. 217.
That the principle of distribution originally derived from the justification of tax liability
itself falls into the background. However, Wagner also rejects measuring the level
of taxation according to the benefit (or cost) principle. Ibid., p. 434.
the "reason for taxes and hence for the right to tax" in the "abolsute
necessity of the State and of the social economic system, and . . . the
'right' of both to 'existence and development'."68 Though Wagner sup-
ports the sacrifice theory only with hesitation, he derives consequences
from it that are more severe than those drawn by other contemporary
authors.69 In contrast to those authors, Wagner considers taxation to
be acceptable, not only for fiscal purposes, but also for "socio-political"
purposes—i.e. for redistribution—as well.70

The primary policy goal of all of the proponents of the German
sacrifice theory was to introduce a progressive income tax. In the mo-
ment in which this goal was obtained—at rates that appear to us today
to be ridiculously low—the theory lost its moral impact. Like legal
theory in the works of Austin, or in Germany, of Gerber and Laband,71
fiscal policy, too, becomes positivistic. Henceforth, it accepts taxation
as a mere fact, the justification or repudiation of which is not its con-
cern. The methods of economic analysis, which had proven useful in
examining the operation of the free market since the time of Ricardo,72
are now applied to State finance; political and moral valuations are
set aside.73 Emil Sax was the first to follow this scientific program
expressly in his work. Sax rejected the organic theory of the State stating,
"the fiction of an independent total personality is certainly untenable."74
His goal was "to replace ethics with economic theory in the science
of fiscal policy."75 At least in this respect Sax was successful. In the
68. Ibid., pp. 216, 436.

69. As Wagner himself emphasized. Ibid., p. 443.
70. Ibid., pp. 207, 215. See also Birk, note 5 above, p. 26.
71. See Austin, Lectures on Jurisprudence, or the Philosophy of Positive Law,
4th ed. (1873). With regard to positivism in Germany see in particular v. Gierke,
"Labands Staatsrecht und die deutsche Rechtswissenschaft," 7 Jahrbuch fur Gesetz-
gebung, Verwaltung und Volkswirtschaft im deutschen Reich (1883), p. 1097; Barsch,
"Der Gerber-Laband'sche Positivismus," in Sattler (ed.), Staat und Recht, Die deutsche
Staatslehre im 19. und 20. Jahrhundert (1972), p. 43; v. Oertzen, "Die Bedeutung
C.F. von Gerbers fiir die deutsche Staatsrechtslehre," in Festgabe filr Rudolf Smend
(1962), p. 183; v. Oertzen, Die soziale Funktion des staatsrechtlichen Positivismus (1974);
Wilhelm, Zur juristischen Methodenlehre im neunzehnten Jahrhundert (1958), pp. 7,
129.
72. See Pribram, A History of Economic Reasoning (1983), p. 169.
73. Milton Friedman formulated this goal of the "positive economy" as follows:
Its task is to provide a system of generalizations that can be used to make
correct predictions about the consequences of any change in circumstances.
Friedman, Essays in Positive Economics (1953), p. 4.
74. See Sax, Grundlegung der theoretischen Staatswissenschaft (1887), p. 192.
75. See v. Beckerath, "Die neuere Geschichte der deutschen Finanzwissenschaft
(seit 1800)," in Handbuch der Finanzwissenschaft, 2nd ed., Vol. 1 (1952), pp. 416,
451. For a late successor of sacrifice theory (without an own original contribution),
KLAUS VOGEL 31
literature of the following period, benefit and sacrifice arguments are
considered, if at all, as reference points for structuring the tax system,
and more particularly, to set the tax rate.76 It is significant that in
this context the discussion nearly always is led in terms of ability to
pay instead of using the sacrifice concept. This indicates that the stan-
dard of measurement rather than the basic justification of tax liability
is discussed.77 Often the controlling nature of the ability to pay princi-
ple is merely intuitively assumed78 or the consequences of one position

or another are examined only with the goal "that seeing such prin-
ciples in action helps to understand how reasonable they are as
distributive standards."79 Nevertheless, more recently such examina-
tions have demonstrated a new and increased interest for the idea of
interpreting taxes as a consideration for State services.80 In part at-
tempts also have been made to apply the instruments of economic
analysis to the political process through which decisions regarding ques-
tions of fiscal policy are made.81
Among fiscal policy theorists in recent times, as far as I can see,
only James M. Buchanan has examined the question of the justifica-
tion for taxation thoroughly.82 Buchanan founds his deliberations in
political theory; he distinguishes between an "organic" view of the
State, in which the State as an independent unity, makes decisions for
society based on a standard of "social benefit" that is constantly in
need of definition,83 and an "individualistic" theory of the State, in
see Gerloff, "Die Rechtfertigung der Besteuerung," in Festgabe fur von Schanz, Vol.
2 (1928), p. 141.
76. See Haller, Die Steuern, 3rd ed. (1981), p. 13. For a criticism of Haller, see
Schmidt, K., "Das Leistungsfahigkeitsprinzip und die Theorie vom proportionalen
Opfer," 26 Finanz-Archiv, New Series, p. 385 (1967); Littmann, "Ein Valet dem
Leistungsfahigkeitsprinzip," in Theorie und Praxis des finanzpolitischen Interven-
tionismus, Fritz Neumark zum 70. Ceburtstag (1970), p. 113.
77. Exceptions include: Blum & Kalven, The Uneasy Case for Progressive Taxa-
tion (1953); Schmidt, "Renaissance der Opfertheorie?" 30 Finanz-Archiv New Series
(1971/72), p. 193.
78. So, for example, if the argument is merely that "there is considerable agree-
ment to this effect." See Neumark, Grundsdtze gerechter und okonomisch rationaler
Steuerpolitik (1970), p. 122.
79. Atkinson & Stiglitz, Lectures on Public Economics (1980), p. 423.
80. In continuation of thoughts which have first been developed by Wicksell and
Lindahl. See Musgrave, note 1 above, pp. 71, 73.
81. See Musgrave, note 1 above, p. 116; Musgrave, R. & Musgrave, P., note 3
above, p. 102; Buchanan, Public Finances in Democratic Process, passim (1967).
82. See Buchanan, "The Pure Theory of Government Finance: A Suggested Ap-
proach," 57 JOURNAL OF POLITICAL ECONOMY (1949), p. 496, reprinted in: Buchanan,
Fiscal Theory and Political Economy, Selected Essays (1960) (the reprinted edition
is hereinafter cited), p. 8.
83. Ibid., p. 9.
which the State has no other goals than those of its members and in
which its decisions are the collective decisions of its members.84 In the
individualistic model, the one Buchanan pursues further, State levies
and State-provided services are "a quid pro quo transaction between
the government and all individuals collectively considered."85 The (older)
benefit theory, in this context, seems to Buchanan to be ethically unac-
ceptable,86 because it requires an individual quid pro quo relationship.87
In contrast, Buchanan considers as necessary a global equivalence be-

tween government services and government levies, in his own words:
"there should exist a quid pro quo relationship between government
and all individuals together."88 Through the use of "should" (follow-
ing primarily descriptive expressions) Buchanan makes clear that the
statement he is making here is intended to be normative. Consequently,
he considers taxation to be justified if and only if an equivalence be-
tween government services and the payments of individuals, collectively
considered, exists.89 In other words, although Buchanan rejects the
benefit theory, he takes up the notion of mutual consideration
nonetheless, but in an expanded sense.
Not long ago, Charles Fried examined the question of the justifica-
tion for taxation from the legal side.90 Like Rawls,91 he limits himself
to a discussion of the use of taxation—in other words, the use of tax
revenue—for purposes of redistribution. Fried considers redistribution
to be permissible only to a limited extent, as far as it is based on "sym-
pathy."92 Another prominent legal scholar, Alvin Warren, offers a two-
pronged justification. On the one hand, he emphasizes that certain goods
can be produced and distributed better through the public sector than
84. Ibid., p. 12.

85. Ibid.
86. He refers to the "unacceptability of the ethical ideal . . ." ibid., p. 14.
87. Ibid., p. 13. That Buchanan's rejection of the benefit theory is based on moral
premises is made especially clear in footnote 10 in which he states that the individual
quid pro quo relationship is unacceptable because it would exclude social payments.
88. Ibid., p. 19. Buchanan adds that only the difference between the amount levied
from the individual and the payments he receives from the government can be viewed
as a burden on him (the fiscal residue). As important as these considerations are,
they can be neglected within the context of this article.
89. The term "equivalence" (not "equilibrium" as used by economic theory in
a very different context) is used to express the character of the quid pro quo relation-
ship intended here, not as a precise mathematical equation, but only a general equal-
ity of value.
90. Fried, "Distributive Justice," 1 Social Philosophy & Policy (1982), p. 45.
91. See note 4 above.
92. "Sympathy" as a basis for moral obligations was suggested much earlier by
Adam Smith.
KLAUS VOGEL 33
through the market." Applied to tax justification, this argument seems

to lead to benefit considerations. On the other hand, Warren bases
the "collective claim for redistributive purposes" on the shortcomings
of the market mechanism.94
In the interests of completeness it should be mentioned that Richard
Epstein in a recently published monograph argues that taxation should
be viewed as a sub-category of eminent domain, in which the compen-
sation is paid (or legally should be paid) through the provision of govern-
ment services.95 Consistently followed through, this theory would con-

stitute a regeneration of the benefit theory in its original form, requir-
ing mutual consideration on an individual basis. Epstein, however, bases
his argument solely on the substantive constitutional law of the United
States and substantiates it only in that context (and in my view uncon-
vincingly). In particular, he does not examine the century-old tradi-
tion of the concept, which almost always, and with good reason, has
treated eminent domain as something distinct from taxation.
III. JUSTIFICATION FOR TAXATION AND THE CONCEPT OF

STATE—THE CONTRIBUTION OF LORENZ VON STEIN
The development of the theory of justification for taxes as described

in the preceding section reflects the evolution of the modern State.
In Europe, the transition from the constitutional concepts of the Mid-
dle Ages to a modern concept of political organization generally is dated
to the seventeenth century, although some of its roots reach back even
further.96 During the religious wars of the sixteenth century the medieval
structures of government proved incapable of guaranteeing peace.
Moreover, they no longer could deal adequately with newly emerging
economic methods and needs. Thus, they were replaced by the cen-
tralized and, at first, personal rule of an "absolute" monarch, who
no longer was bound by the old law or to the consent of the estates.
The emergence of two new words, "State" and "sovereignty,"97 clearly
93. See Warren, note 5 above, p. 1090.

94. Ibid., p. 1091: " . . . on the theory that a producer does not have a controll-
ing moral claim over the product of his capital and labor, given the role of fortuity
in income distribution and the dependence of producers on consumers and other pro-
ducers to create value in our society."
95. See Epstein, Takings: Private Property and the Power of Eminent Domain
(1985). Regarding the precedent discussion of this topic in American case law and
literature, see Ackermann, Private Property and the Constitution (1977).
96. See Menger, Deutsche Verfassungsgeschichte der Neuzeit, 2nd ed. (1979), p. 42.
97. As is well known, the term "State" can be traced back to Machiavelli. See
Machiavelli, II Principe, Cap. 1 (1527). The term "sovereignty" has been coined by
shows that the new situation no longer could be described with tradi-
tional terms.
The change of the form of political organization coincided with a
change of paradigms in political philosophy. Whether this change was
generated by, or whether it generated the change in political institu-
tions cannot be determined with accuracy. In any case, for two
simultaneously emerging reasons it suddenly became impossible to justify
government through reference to tradition. The Age of Enlightenment

pursued a rational justification for government, and it pursued in par-
ticular a rational justification for the limitations on freedom that govern-
ment imposes on the governed. With the emergence of the modern
State, therefore, the question of its justification arises. The theory of
social contract offers one answer to this question.
Of course, the State of the seventeenth and eighteenth centuries did
not yet correspond to the modern State in every respect. First, State
sovereignty was not a general, absolute power.98 The rule of the "ab-
solute" monarch may have been unlimited in fact, as it was postulated
to be by Hobbes. Legally, however, it was restricted to the exercise
of a limited number of sovereign rights, which, if challenged in litiga-
tion, had to be established affirmatively. For certain decisions,
moreover, the consent of the estates was required." The continued vali-
dity of such limitations may have remained uncertain for more than
a century, as they did in France. But once problems arose for the State
that could not be overcome otherwise, the king of France was forced
to turn to the general estates again. Second, government in the State
of the seventeenth and eighteenth century remained a matter of per-
sonal rule. State power and the personal sovereign, State property and
the private property of the monarch, empire and dominion, were not
yet distinguished. The State was not yet viewed as an abstract entity,
distinct from the person of the ruler, as it became later following the
formation of the constitutional State and as it is still conceived today.
For the philosophers of the Age of Enlightenment the question of
Bodin. See Bodin, Les Six Livres de la Republique, L. I, Ch. 1 (1576). Regarding
sovereignty as an element of the modern concept of the State, see Quaritsch, Staat
und Souverdnitdt (1970). Regarding the limitation of sovereignty to a particular
geographical territory (in contrast to the "personal allegiance State" of trie Middle
Ages), see Vogel, Der rdumliche Anwendungsbereich der Verwaltungsrechtsnorm (1965),
p. 43.
98. The modern State is different. Its sovereignty is limited, it is true, by the con-
stitution, however, within these limits sovereignty is universal and needs not to be
established from case to case. See Kriiger, Allgemeine Staatslehre, 2nd ed. (1966), p. 827.
99. See Bockenforde, Gesetz und gesetzgebende Gewalt, 2nd ed. (1981), p. 71.
KLAUS VOGEL 35
the justification of the State necessarily leads to the question of the
justification for taxation. That a particular need exists for levying a
tax is no more sufficient as a justification than is a reference to tradi-
tion. In view of the constitutional principles just described the theory
of social contract could refer only to the personal, legal connection
between the sovereign and his subjects, to an individual quid pro quo
relationship. For readers of that time, this answer had an advantage
in that, even without expressly so stating, it could be linked up with

legal notions that had been handed down from earlier generations.
Already in the Middle Ages, "stiure" (tax)—as an extraordinary aid
in situations of necessity—had been a part of a mutual relationship:
the vassal owed "Steuer, Robot, und Reise" (money, labor and military
service), the lord "Schutz und Schirm" (defense and protection).100
There is reason to assume that scholastic philosophers, though they
did not discuss this aspect of tax liability explicitly, as well as the thinkers
of the Age of Enlightenment, fundamentally were aware of this legal
notion and that this supported the persuasive power of the philosophical
reasoning.
Obviously, this theory was as unacceptable for the romantics two
hundred years later as was the theory of social contract on which it
was based. Nevertheless, it would be inaccurate to explain the replace-
ment of the benefit theory through the sacrifice theory merely by refer-
ring to the opposition of romanticism to rationalism, its preoccupa-
tion with the naturally grown, the "organic," and its accompanying
pseudotheologic idolization of the State. It should not be overlooked
that among the progenitors of the sacrifice theory was John Stuart
Mill, whose thought, despite his admiration of Colerigde,101 was decid-
edly influenced by the utilitarianism of Jeremy Bentham, and who cer-
tainly was not a romantic thinker. Mill, too, sees the power of the
State as a unity, as an institution that cannot be reduced to individual
relationships but which exists as a whole in relationship to all citizens
in common. This view reflects a development of constitutional con-
cepts and constitutional law in the late eighteenth and early nineteenth
centuries. The development can be perceived in Germany as early as
the period of enlightened absolutism, for example in the writings of
Frederick the Second of Prussia. It finally became irresistible in the
wake of the French revolution. The former individual sovereign rights
of the ruler merged into a unitary supreme power, attributed to the
100. See Brunner, note 25 above.

State, which was distinct from the person of the sovereign. State budget
and the purse of the ruler, imperium and dominium were now
distinguished. The State began to finance itself through levies on its
subjects rather than through direct economic activity. The notion of
"State" came to be a distinct conceptual entity itself; in other words,
the State was now conceived of as a juridical person, apart from the
ruler. The modern State as we perceive it today is completed through
these developments.

This change is appreciated theoretically for the first time in a now
famous book review by Albrecht102 of a treatise on constitutional law
theory by Maurenbrecher. It is expressed above all, however, by the
organic theory of the State and by the sacrifice theory of taxation.
In other words, the change in constitutional law and theory was a prere-
quisite for these theories, and it presumably provided their impetus.
The constitutional change, of course, did not unavoidably lead to these
new ideas. Thus, the quid pro quo concept continued to be asserted
by some, and continues to be so asserted even today. The appeal of
the quid pro quo argumentation is even easier to understand nowadays,
since we no longer are prepared to accept some of the excesses of the
sacrifice theory. Today, in contrast to the organic theory—and much
more in conformity with that which the Age of Enlightenment taught—
the State is seen as an instrument destined to serve in the interest of
the citizens, and nothing more.
As the end of the nineteenth century approaches, nature and ex-
istence of the modern State more and more are taken for granted (and
the sacrifice theory no longer is needed to accomplish the political goal
of implementing a general income tax). Consequently academic interest
for the questions of the justification of the State and of taxation begins
to fade away. Positivism is a sign of stability;103 the positivism of fiscal
theory104 during the past hundred years shows the extent to which the
102. See Albrecht, Gottingische gelehrte Anzeigen (1837), p. 1489. Albrecht speaks
of a "battle between the old law, which was carried over from the time of the constit-
utional empire into modern times, and a new law," ibid., p. 1490, and that the old
law of the State had a "civil law coloring," while the new law has a "public law
coloring." Ibid., p. 1491. The book reviewed by Albrecht is Maurenbrecher, Grundsdtze
des heutigen deutschen Staatsrechts (1837).
103. At the same time it has a stabilizing effect because it excludes unsettled con-
flicts. Regarding positivism in constitutional law since Gerber and Laband, see
Bockenforde, note 90 above, pp. 211, 214 as well as the references in note 71.
104. It must be added that to the extent constitutional questions regarding fiscal
matters are concerned, positivism continues to be uncontested in constitutional case
law and literature in Germany. The tendency of German constitutional courts (federal
and State courts) to refer to pre-positivistic aspects which transcend the positive text
KLAUS VOGEL 37
foundations of the fiscal system created during the nineteenth century

have remained undisputed.105
None of the authors previously mentioned seems to have been aware
that his views are historically contingent, that the concept of the State
on which they base their arguments—usually tacitly and certainly often
unconsciously—is not fixed but is itself in a process of development.
Each considers that portion of the historical development in which he
lives as immutable and consequently his conclusions to be universally

valid. Only one author, Lorenz von Stein, recognizes that "State" and
"taxation" have a historical dimension.106 His work has not yet been
discussed here because it does not fit into one of the "mainstreams"
of fiscal thought. Fiscal policy theorists, to the extent they have referred
to his works, usually have expressed their utmost respect, but as a rule
have not really been sure what to make of him. This is not surprising
because Stein is not an economist. A lawyer by education and a
philosopher by disposition (whose views were based on those of Hegel),
Stein's academic work is concerned primarily with the institutions of
cooperative human existence, State and civil society. He analyzes them
as historic phenomena and attempts to determine and describe the rules
governing their development and interaction, their mechanics and their
organization. Fiscal policy for Stein is not primarily economics, but
"part of political science and, within political science, of administrative
theory." 107 His thoughts concerning the concept of and justification
for taxation do not fit, therefore, into the context of the theories of
tax justification of his contemporaries. This fact together with the clarity
of the constitution and the academic criticism of positivism that has emerged par-
ticularly since World War II have left the constitutional fiscal law in Germany
untouched.
105. Myrdal emphasizes that even the highly abstract doctrines of economic policy
are based in the end on "political theories." See Myrdal, Das politische Element in
der nationalokonomischen Doktrinbildung, VIII passim (1932). Myrdal does not
recognize, however, that real constitutional developments are behind these "political
theories" (perhaps he should have said "political value judgments").
106. See von Stein, Lehrbuch der Finanzwissenschaft, 5th ed. Erster Theil and Zweiter
Theil, Erste Abtheilung (1885); Ibid. Zweite and Dritte Abtheilung (1886). Regarding
von Stein, see von Beckerath & Kloten, v. Stein, Lorenz, in Handworterbuch der
Sozialwissenschaften, Vol. 10, p. 89 (1959); Bockenforde, "Lorenz von Stein,
Theoretiker der Bewegung von Staat und Gesellschaft zum Sozialstaat," in Festschrift
fur Otto Brunner (1963), p. 248, hereinafter cited from the reprint in Bockenforde,
Staat, Gesellschaft, Freiheit (1976), p. 146; Suhr, Staat—Gesellschaft—Verfassung von
Hegel bis heute, Der Staat (1978), p. 369; Heilmann, Lorenz von Stein und die Grund-
probleme der Steuerlehre, 1984. For further references see Bockenforde, note 90, p. 367.
107. See von Stein, note 106 above, Vol. I, p. 183. Even more heretical is Stein's
conclusion that fiscal science cannot "have its own system" because it is a part of
administrative theory.
of his analysis108 and, finally, the fact that Stein alone saw the ques-
tion of the political limits for taxation arising, make it appropriate
to present his contribution to the theory of the justification for taxa-
tion separate from others.
For Stein, tax and State are historically intimately linked. Not only
did an actual system of public finance first come into existence with
the emergence of the modern State,109 Stein notes that the term " t a x "
as well "originated only with the development of the idea of the
State," 110 in the "monarchical public finance" 111 beginning with the

sixteenth century. Consequently it remains closely related to the develop-
ment of the concept of the State." 2 Certainly, the Middle Ages did
not only use the word tax ("stiure"), but had a broad theory of the
legitimacy of taxation as well. Important for Stein, however, is that
through its assimilation into the modern State, the character of taxa-
tion was changed, and that from that point on it continued to change
as the State itself changed. With the replacement of the patriarchal
State through the constitutional State, the importance of taxation grew
even further. "In view of the constantly increasing scope of the ad-
ministrative agencies, which simultaneously impinges on all areas of
private life, it becomes clear for the first time that neither the demesne
nor the fees, nor the old taxes of the noble estates suffice; general
liability to tax becomes the only adequate basis for State revenues." 113
Since that time taxes have "exceeded all other State revenue sources
so dramatically that, in comparison, those other sources appear
trivial." 114 They assume "at this time by far the predominant position
in the hierarchy of State revenue sources . . . and, indeed, not only
in the general consciousness but also in the new economic science . . . .
So it evolved that the focus of all questions of public finance since
the beginning of the nineteenth century has centered around tax ques-
tions."" 5 The importance of this (almost) exclusive instrument of State
financing is even greater considering that the ability to obtain financ-
ing is a fundamental prerequisite of all State activity. "Therefore, we
argue that, to be sure, only that is possible which is made so through
108. See Bockenforde, Lorenz von Stein, note 106 above, p. 147. Bockenforde speaks
of "his"—Stein's—"particular keen insight" ("der ihm eigene Tiefblick").
109. See von Stein, note 106 above, Vol. I, pp. 54, 107.
110. Ibid., Vol. II 1, p. 349.
111. Ibid. Vol. I, pp. 119, 123.
112. Ibid. Vol. II 1, p. 361.
113. Ibid. p. 133.
114. Ibid. p. 346.
115. Ibid. p. 133.
KLAUS VOGEL 39
receipts of the State for us administration and expenditures, that which
is not, is not."116 This description fully anticipates Schumpeter's con-
cept of "tax State";117 only the term itself has not yet been coined.
Since the measure of the State is its citizens,118 it goes without say-
ing that taxes require justification. In Stein's words the individual strives
"to find the ultimate harmony for the profound contradiction inherent
in the concept of 'tax' and of 'individual autonomy'." "It may be
sufficient to accept that process of taxation as a simple fact that one

cannot avoid, as Franklin said, or to dismiss it with trivial utilitarian
rationalizations, like Montesquieu. Those, however, who place
themselves at the forefront of cultural development, must in the end
pursue the matter to its most basic explanation."119 Stein rejects sacrifice
theory as "odd," stating that it is "theoretically and practically wor-
thless,"120 and he feels the same about benefit theory. Both theories,
he observes, are based on an analogy of public to private economy.121
In contrast, Stein developed his theory of the justification for taxes
from the consideration that "one of the two major conditions for all
development," aside from "the application of individual effort," is
"the community of human beings in the reciprocal activity of all in-
dividuals successively." It is, however,"—even mathematically—
impossible that this community can provide for the individual, even
economically, the conditions necessary for progress if individuals do
not return to the community a portion of the economic progress that
they derive from it."122 The State contributes "order and measure"
to this progress through the expression of its will, the law.123 "So it
116. Ibid., Vol. I, p. 26.

117. See Schumpeter, Die Krise des Steuerstaates, (1918), reprinted in: Schumpeter,
Aufsdtze zur Soziologie (1953). See also Isensee, "Steuerstaat als Staatsform," in
Festschrift fur Hans Peter Ipsen (1977), p. 409. The term "Steuerstaat," can be found
in Weber, Wirtschaft und Gesellschaft, 4th ed. (1956), p. 117. Weber replaces the
term with "Geldabgabenstaat," a more general term that encompasses all sorts of
monetary payments to the State, not just taxes. The first edition of Staat und
Gesellschaft was published posthumously in 1921, after Schumpeter's article.
118. See von Stein, note 106 above, Vol. I, p. 24.
119. Ibid., Vol. II 1, p. 348.
120. Ibid., Vol. I, p. 28. This is true in spite of the fact that Stein labelled his
own theory "organic." Ibid., Vol. I, p. 7. Nevertheless, Stein's theory is something
completely different from what is usually called the "organic theory of the State."
121. Ibid., Vol. II 1, p. 352. It should be mentioned here, however, that in spite
of his historical understanding of the term "tax," Stein does not recognize that
"theories" about taxation (and their possibly relative justifications) are historically
dependent as well. In particular his evaluation of German Kameraljurisprudenz in the
sixteenth century is completely unhistorical.
122. Ibid., p. 348.
123. Ibid., p. 349.
occurs, that the payments of the individual to the community in and
of themselves originate in the general human essence of the latter; taxes,
however, in turn originate from the development of the concept of
the State."124
It follows from this reasoning that taxes are justified only to the
extent to which justification can be derived from the underlying justi-
fying principle. The necessity of justifying the concept of "tax,"
therefore, implies limitations on State activity in taxation. The State

must formalize through its legislation the idea of a tax, "the develop-
ment of its concept and essence out of the essence and personality of
the State itself,"125 "not just to realize its own (the legislator's) sub-
jective view as was the case during the period of the monarchical system
of State finance."126 From this duty and obligation127 Stein derives three
limiting principles for the taxing power of the State.128 The first is the
"economic" or "national economic principle" according to which taxes
must not impinge on capital, because, as a consequence, "that would
slowly destroy the process of the new formation of the same through
income and accumulation of income and capital."129 The second prin-
ciple, the "financial principle," prohibits levying more taxes than re-
quired by public need. It demands thrift where and when taxes are
utilized, and, if necessary, a short term investment of funds not cur-
rently needed.130 Stein places a special emphasis, however, on the third
principle, the "state economic principle."131 He calls it the "principle
of the reproductivity of taxation" and repeats its fundamental ideas
unremittingly.132 Capital formation and, therefore, economic develop-
ment is not possible for anyone according to Stein "if the economic
value of that which I use does not exceed the economic value of that
which I produce through its use." This applies "to the economic ad-
ministration of the State treasury as well as to each individual."133 The
economic success of State administration depends "on its effect on
the taxing capacity"134 (Stein was aware, of course, that the extent
124. Ibid., p. 350.

125. Ibid., p. 351.
126. Ibid., p. 353.
127. Stein states that the State "must express the essence of the tax." Ibid.
128. Ibid., p. 360.
129. Ibid., pp. 354, 355.
130. Ibid., p. 356.
131. Ibid.
132. Ibid., Vol. I, pp. 23, 26, 180; Vol. II 1, pp. 357, 416.
133. Ibid., Vol. I, p. 180.
134. Ibid., p. 181.
KLAUS VOGEL 41
of this effect cannot be calculated precisely; he emphasizes that it must
be estimated in a "statesmanlike" manner.135 Each tax, therefore, "must
be reproductive in its very nature and create at least as much as it
consumes."136 "If the administration of the tax costs more than it is
worth, the source of the revenue for the State, the individual produc-
tion, will first lose its productive strength and then will perish itself."137
"It follows, therefore, in terms of national economics that it is the
most essential goal of each tax to be capable through its administra-

tion to return as an element of capital formation to the individual who
paid it, that a tax is in this respect more correct and justified to the
extent it can accomplish this goal better and more efficiently, and that
it becomes wrong in that moment where, through deficient administra-
tion, it loses this capacity."138
If these principles are not observed, the existence of the State is en-
dangered, at least in the long run, and with it the social order itself,
indeed, the "idea of the free development of the personality."139 Stein
sees a serious danger arising in this respect from "State socialism"
supported by Adolph Wagner.140 Stein, who certainly did not
underestimate the importance of the social question—he was one of
the first to point out that problem141 and sought a solution through
the evolution of a "social monarchy"142—criticized the path Wagner
suggested for the inherent excessiveness of the principle on which it
was based. Wagner, defending his views in a rebuttal to Stein, em-
phasized that he had always argued that State socialism had to limit
135. Ibid., p. 181 and 182. In other words: Stein understands the principle of
reproductivity as a legal principle which needs constructive interpretation (with regard
to "creative" or "constructive" interpretation see Dworkin, Law's Empire (1986),
p. 52), not as an economic postulate which could be "operational." Stein's economist
critics usually did not understand this, see Heilmann, note 106 above, p. 86. This
author, in contrast, endeavors to do justice to Stein's position.
136. Ibid., Vol. II 1, p. 359.
137. Ibid., Vol. I, P- 26.
138. Ibid., Vol. II 1, p. 358.
139. Ibid., Vol. I, P- 150.
140. Ibid., p. 148.
141. Stein writes "the proletariat, whose situation contradicts the law of civiliza-
tion," see von Stein, Der Socialismus und Communismus des heutigen Frankreichs
(1842), p. 42, and "whether the noblest and most absolute task of our time does not
lie precisely in raising the lower classes to a morally and materially better position."
Ibid., p. 445. Noteworthy are also the designation of the proletariat as a "class" and—
six years before the Communist Manifesto—the designation of communism as " a dark
and threatening apparition." Ibid., p. 4 (compare the introductory words of the
Manifesto!)
142. Regarding the idea of a "monarchy of social reform" in Stein's work, see
Bockenforde, Lorenz von Stein, note 106 above, p. 164.
itself "to that which is reasonably attainable," and that it must "re-
main in perspective"143 (in this context it must be considered, of course,
that Wagner's conceptions were nowhere near as extensive as that which
has been realized today in terms of redistribution). Stein's focus,
however, is more precise. In contrast to Wagner, Stein is aware that
the matter cannot be settled through a one-time fulfillment of social
demands, for it is "the essence of all social movements that their
demands themselves are unlimited."144 Even the internal State admin-
istration has "absolutely no limit for its social activities."145 In con-

trast, fiscal theory, as Stein emphasizes repeatedly, is obliged to point
out two fundamental limitations. The first is that the administration
can only accomplish that which can be financed, that every social
measure, therefore, presupposes a corresponding receipt of revenue by
the State.146 Thus, for Stein it is "clear . . ., that each thought belong-
ing to State socialism in the end must reappear as tax legislation."147
The second limitation is that all tax legislation is limited at that point
in which it begins "to reduce income to such an extent that it loses
its power to generate capital."148
Apparently Stein does not estimate very highly the chances of State
socialism remaining "rational."149 He notes that even a simple ma-
jority of the representatives of the public would suffice to alter the
tax law.150 Because the poorer classes always constitute the majority,
the time can be foreseen in which "the decision regarding whether or
not a tax law continues to make capital accumulation through income
possible will depend on those who are not in a position to make such
a decision, not because their intelligence is not sufficient, but because
they, being themselves without capital, are not capable of judging the
conditions necessary for capital accumulation."151 If, however, "the
tax system exceeds these limits, it will destroy progress in society as
well as the social order itself, just as it did in Athens and Rome."
Finally, Stein adds that "in such cases taxation itself loses its character
and becomes a system of force."152
143. See Wagner, "Finanzwissenschaft und Staatssozialismus," Zeitschrift fur die

gesamte Staatswissenschaft (1887), pp. 675, 686.
144. See von Stein, note 106 above, Vol. I, p. 155.
145. Ibid., p. 156.
146. Ibid., p. 154.
147. Ibid., p. 157.
148. Ibid., pp. 150, 153, 158.
149. Ibid., p. 158.
150. Ibid., p. 149.
151. Ibid., p. 159.
152. Ibid., p. 150.
KLAUS VOGEL 43
Against such dismal visions, Stein posits the constitutional idea of
the tax as "the expression of the unitary idea of the State" and "the
primary area of application of the freedom of the citizen." It is the
difficult task of tax law "to introduce a standard of measurement"
"into the in itself illimitable area" of administration. "It is precisely
here, in taxation, that the foundation is laid for the principle and preser-
vation of that which constitutes the beginning and the end of all political
science, the independent, individual personality."153

IV. CHANGES IN THE REALITY OF THE STATE
THE TRIANGLE STATE/ECONOMY/SOCIETY
In summary, Stein justifies taxation vis-a-vis "individual in-

dependence" by arguing that it is only through taxation that the com-
munity is placed in the position to provide individuals with "the
economic conditions required for their development." In other words,
through taxes individuals return to the community "a portion of the
economic progress they derive therefrom."154 Stein does not hesitate
to label this a "mutual" relationship.155 By this, however, he certainly
does not intend to imply a strict quid pro quo relationship.156 Stein's
theory was and is superior to both the earlier and contemporary theories
on tax justification in three respects. First, according to Stein's theory
the concept of the State and the relationship of the State to the in-
dividual is much more sharply developed, more thoroughly analyzed,
and more precisely described than in other theories. Second, his theory
is conscious of its dependence on a particular historical context, namely
that it relates to the State in a particular epoch; it is not preoccupied
with the illusion of being able to say something about the State in
general or absolutely. Third, and finally, his theory is based on a con-
cept of humanity that is freedom-oriented but, like the concept of
humanity in German law as interpreted by the German Federal Con-
stitutional Court, is "not that of an isolated, sovereign individual,"
rather that of an individual in his actual situation as a member of a
community on which he is as dependent as the community is on him.157
On this basis and with an appreciation for the needs of the individual
as well as for those of the administration, Stein develops not only the
153. Ibid., Vol. Ill, p. 364.

154. Ibid., p. 348.
155. Ibid.
156. Ibid., p. 352.
157. Entscheidungen des Bundesverfassungsgerichts, Vol. 4, pp. 7, 15. See Suhr,
Entfaltung des Menschen durch den Menschen (1976), p. 78.
duties of the individual to the community, but also the limits of those
duties. In doing so, he always stays sensitive to the possibility of overem-
phasizing freedom as well as to the circumstances that would endanger
it. We may ask perhaps whether in formulating his tax principles Stein
should have mentioned explicitly the social needs of his time, which
he otherwise recognized. Nevertheless, Stein's theory is certainly superior
to that of Wagner which he convincingly criticized.
With this limitation, Stein's theory remains convincing even today.

Its dependence on a particular historical context, which Stein himself
acknowledges, implies of course that it cannot simply be adopted un-
changed. During the last hundred years, the reality of the State has
changed. The theory of tax justification, therefore, must be reexamined
in light of this new reality and, to the extent necessary and possible,
it must be adjusted to this change, fitted to the new reality, "modern-
ized."
What is the essence of the change? For Stein the connection between
the individual and the State is two-pronged. The State stands in a rela-
tionship with the individual alone, or more precisely, with the totality
of individuals, with "civil society." 158 Economic connections are con-
nections between individuals on the basis of legal equality, as is even
today presupposed to be the normal situation by neo-classical economic
theory. Stein borrows the term "civil society" from Hegel.159 However,
he does not limit the concept to the area of "overlapping needs and
their mutual gratification"160—in short, the economy and the assurance
158. Stein developed his concept of "society" for the first time systematically in
the second edition of Socialismus und Communismus des heutigen Frankreichs, note
141 above, Vol. I p. 14. As is characteristc for his tireless work on all problems,
Stein rethinks and develops this term further from work to work and within each
work, from edition to edition. Regarding its importance today, see Bockenforde, "Die
Bedeutung der Unterscheidung von Staat und Gesellschaft im demokratischen Sozialstaat
der Gegenwart," in Festgabe fur Wolfgang Hefermehl (1972), p. 11, reprinted in :
Bockenforde, Staat, Gesellschaft, Freiheit (1976), p. 185. See also Karpen, "Die
Unterscheidung von Staat und Gesellschaft als Bedingung der rechtsstaatlichen Freiheit,"
18 Juristische Arbeitsbldtter (1986), p. 299.
159. Regarding the evolution of the concept within the development of Hegel's
philosophy into his "philosophy of law" and regarding of the systematic meaning
of the term, see Pelczynski, "Introduction, The Significance of Hegels Separation of
the State and Civil Society," in The State and Civil Society, Studies in Hegels Political
Philosophy (1984), p. 1. See also Riedel, "Hegels Burgerliche Gesellschaft und das
Problem ihres geschichtlichen Ursprungs," 48 Archiv fur Rechts- und Sozialphilosophie,
p. 539; Riedel, Burgerliche Gesellschaft und Staat (1970). In contrast, Koslowski under-
stands the bifurcation as a "dualism between a governmental and a cooperative prin-
ciple" that originated with Plato and has been carried forward into the present. See
Koslowski, Gesellschaft und Staat (1982), p. 1.
160. See Hegel, Grundlinien der Philosophie des Rechts, § 181 (1821).
KLAUS VOGEL 45
of its prerequisites—as had Hegel, but also includes within his concept
of "civil society," to phrase it simply again, the world of "daily life,"
the noneconomic coexistence of citizens as equals. This concept cor-
responded to the reality of his time. Economy and daily life may have
been separate in so far as they were governed by different principles,
but they were not separate in the world of experience, or at least not
sharply divided.161 (Stein was aware that in this context legal equality
in society did not entail social equality as well,162 and he saw the prob-

lems that resulted therefrom).
Around the middle of the nineteenth century, however, a develop-
ment commenced as a result of which economic relations today no
longer can be seen merely as relations between individuals. Big enter-
prises emerged making use of the new legal form, the corporation.163
They grew to increasingly larger and more diverse organizations, and
began to draw away a major portion of production and distribution.164
In these major enterprises the decision-making power migrated step
by step from the owners to non-owners, highly compensated employees,
the "managers." In the United States, where this development occurred
earlier and was accomplished more quickly than elsewhere, Berle and
Means determined in 1932 to the astonishment of many, that already
58% of the large "capitalistic" industrial enterprises no longer were
in the hands of their "owner-capitalists" but in those of managers.165
In 1941, James Burnham, educated in the categories of the Marxist
theory of class struggle, believed himself able to determine a "new
161. Expressed in terms of system theory, the system "society" had not yet fully
distinguished its subsystem "economy."
162. See notes 141, 142 above. See also Bockenforde, Lorenz von Stein, note 142
above, p. 146.
163. Even Lenin perceived that this was an important development. See Lenin, "Der
Imperialismus als hochstes Stadium des Kapitalismus" (1917), reprinted in: Werke
Vol. 22 (1972), pp. 206, 214. It certainly was not possible at that time for Lenin to
recognize the direction this development would take, aside from the fact his dogmatic
viewpoint presumably would have prevented him from such an insight. In contrast,
there is at the same time an early, if even faint, idea of the separation between ad-
ministrative power and property in Rathenau, Vom Aktienwesen (1917), p. 23.
164. For the history of this development, see Chandler, The Visible Hand (1977);
Chandler, Strategy and Structure (1962).
165. See Berle & Means, The Modern Corporation and Private Property (1932),
p. 94. In the same context regarding Germany at a more recent time, see Cassier,
Wer bestimmt die Geschdftspolitik der Gro&unternehmenl (1962), p. 49; Arndt, Wirt-
schaftliche Macht, 3rd ed. (1980), p. 22. For a critique of the methods applied and
the results obtained by Berle and Means, see Herman, Corporate Control, Corporate
Power (1981), p. 11. Herman's studies, however, confirm at least the tendency of
the results obtained by Berle and Means. Ibid., pp. 53, 244.
class," the managers.166 More recent studies have examined the pro-
cess of concentration167 and indicate the extensive interweaving of per-
sonnel, even between otherwise independent major enterprises resulting,
for example, through simultaneous membership on the board of direc-
tors of numerous corporations.168 Other studies analyze the decision-
making process in such enterprises.169 It has been correctly noted that
in the wake of the development just described, stock ownership of port-
folio owners nowadays is only a "mediated form of ownership."170
All in all, as a consequence of this development "the economy" today

to a very large extent no longer is exchange, not market, but organiza-
tion. Not only conceptually, but even in the empirical world it has
become an independent "subsystem" of its own.
Stein's term "civil society" cannot encompass that. Stock corpora-
tions are not individuals, but organizations. Of course, the owners of
the corporation still are individuals,171 and so it could be maintained
that in the end everything continues to be adequately described by the
original concept of "civil society." Such an interpretation, however,
would not do justice to the independence and to the importance that
organization has attained in these major enterprises.
That a qualitative change is involved here is not recognized, in par-
ticular, under orthodox Marxism. Marxist authors continue to insist
that in "monopoly capitalism" private property continues to be the
central element of the system.172 The view is based ultimately on the
Marxist theory of value. Though economists have refuted this theory
for more than 100 years, Marxists continue to assert it. This stern
adherence in the face of clear economic reason can be understood only
if it is realized that beneath the transient economic exterior of the value
theory a metaeconomic statement is to be found, which its proponents
are not willing to sacrifice even for the sake of economic consistency.
166. See Burnham, The Managerial Revolution (1941).

167. See Arndt (ed.), "Die Konzentration in der Wirtschaft," Schriften des Vereins
fur Socialpolitik, Vol. 20 (1960); Lend, Ursachen der Konzentration, 2nd ed. (1968).
168. See Herman, note 165 above, p. 43; " 'club' concept of corporate board,"
Ibid., p. 44; "The largest nonfinancial firms today are connected with one another
through an extensive though loose network of interlocks, joint ventures, advisory bodies,
and other social, political and trade groups," ibid., p. 243.
169. See Marris & Wood, The Corporate Economy, Growth, Competition and In-
novative Potential (1971); Needham, The Economics of Industrial Structure, Conduct
and Performance (1978).
170. See Suhr, Eigentumsinstitut und Aktieneigentum (1966), p. 141.
171. Legally, the shareholders, in reality, the entirety of all those active in the
business, especially the top management.
172. See O'Connor, The Corporations and the State (1974), p. 14.
KLAUS VOGEL 47
This "kerygma"1™ of the value theory seems to consist at least in the
conviction that the distribution of value created in an enterprise is to
be evaluated according to aspects of justice and that in fact distribu-
tion is unjust.174 Even accepting such a conviction, however, it should
be evident that there is a fundamental difference in whether the "ap-
propriated surplus in value" flows to a personal owner for his own
disposition or whether it remains as an investment in an organizationally
independent enterprise under the power of disposition of an (almost)
independent management. It is true that the power of disposition is

still framed in terms of civil law and that it uses the legal figure of
private property, but this today is nothing more than a matter of
historical contingency. It makes it possible, it is true, that corpora-
tions can be acquired by individual persons (as they are, e.g., by
takeover-bids or management buy-outs). But this is not material for
the functioning of the system; shaping the power of disposition in terms
of public law would be equally conceivable. The directors of a cor-
poration are distinguishable from the managers of a major communist
enterprise not because the corporation is organized according to civil
law instead of public law but because they are independent from State
administration. Certainly, the question of how much of the profit will
be distributed to workers and owners and how much will be invested
may be a question of justice even today. But the criteria according
to which this question of justice should be decided must necessarily
differ today from what they were 100 years ago.
On the other hand it is misleading, too, to describe the economic
world of the individual, the "market system" (that is Stein's "civil
society") and the world of major industry as two separate and distinct
areas, as Galbraith and others have done.175 Even very big business
acts within the context of the market and is dependent on the cir-
cumstances existing within the market, unless it occupies a monopoly
position. Moreover, the distinction between small, medium-size, and
big business is fluid and the boundary between them is constantly chang-
ing.176 Only the density of organization within the "economic system"
increases continuously from the smallest economic units to the largest
173. As the term is used by Bultmann, whose methodical principle is used here.
174. For a differentiated interpretation of the value theory, see Habermas, Theorie
des kommunikativen Handelns, Vol. 2, (1981), p. 494. However, Habermas, too, re-
jects this theory in the end, even though he has other than economic reasons for doing
so.
175. See Galbraith, Economics and the Public Purpose (1973), pp. 55, 84 passim.
176. Moderately-sized businesses expand; family business appoint outside top
managers; other businesses are absorbed, etc.
businesses;177 it is most dense at the pinnacle, and it is at the base,
where the classical market conditions are controlling, the least, almost
non-existent. "Pinnacle," "base," and everything in between, however,
constitute a uniform field within which precise border lines cannot be
drawn. Everybody belongs to this system as far as he or she participates
in economic activity, that is, produces economic output—hence, prac-
tically everyone.
It was Schumpeter who correctly observed that the State (the "tax

State") stands opposite this sphere of private business as "something
peripheral, foreign to the specific purpose of private business, even
as something inimical."178 This relationship has been more precisely
described by E. E. Schattschneider, one of the very important American
political scientists of the previous generation. Schattschneider speaks
of "two major power systems, government and business,"179 that are
antagonists, "independent and inseparable,"180 and he notes that
"everybody belongs to both empires."181 Schattschneider neither
idealizes the relationship, nor does he dramatize it. He sees that the
economic system includes characteristics which contradict the prevail-
ing values in a democratic State,182 and he opposes in particular the
harmonizing views of the pluralists,183 showing that primarily the up-
per classes are represented through interest groups.184 On the other hand,
he warns the reader to avoid the naive view that business controls the
State. In contrast, business rather is "educated" through the political
party system.185 The conflict between State and business is "inherent,"
177. It should be noted that this occurred without ever attaining the density of
organisation of the "system State."
178. See Schumpeter, note 117, p 23. See also Forsthoff, Der Staat der In-
dustriegesellschaft (1971), p. 164.
179. See Schattschneider, The Semisovereign People (I960), p. 116, (second print-
ing 1975).
180. Ibid., p. 117. "Once upon a time the church was the principal nongovernmen-
tal institution; today it is business." Ibid., p. 116.
181. Ibid., p. 117.
182. "(I)t fosters a high degree of inequality and invites concentration of power."
Ibid.
183. See Bentley, The Process of Government (1909). More recently, primarily regard-
ing the United States, see Truman, The Governmental Process, 2nd ed. (1971); Dahl,
Pluralist Democracy in the United States (1967); Dahl, Dilemmas of Pluralist Democracy
(1982). See also Cigler & Loomis (ed.), Interest Group Politics (1983). With regard
to Germany see Becker, Gewaltenteilung und Gruppenstaat (1986).
184. See Schattschneider, note 179 above, p. 20. Interest groups, moreover, could
never win the influence the pluralistic theory ascribes to them. Ibid., 35. For a criticism
of the "pluralistic theory of harmony," see von Arnim, Gemeinwohl und Grup-
peninteressen (1977), p. 148.
185. See Schattschneider, note 179 above, p. 42.
KLAUS VOGEL 49
but, more or less, there is an equilibrium between them.186 The expan-

sion of big business has led to a corresponding expansion of State power,
"big democracy." 187 Thus, in place of the former system of separa-
tion of powers, which lost its effectiveness as a result of social changes,
a "new system of separation of powers" has emerged in the form of
an equilibrium between the State and business.188 All this is outlined
more associatively then systematically; however, the diagnosis is precise
and correct.189 How the result of this analysis should be evaluated will

be discussed later. In any case, Schattschneider notes accurately that
in place of the earlier two-pronged relationship between the State and
the individual, today in western States the relationship is three-pronged
(triangular). State and economy have to be considered as two separate
subsystems, in which the individual belongs both to the "state system"
as a citizen and to the "economic system" as a producer. This is over-
simplified to show the basic structure, of course. Applying the result
to Stein's system (which was simplified, too, for the same reason), it
could be said that in place of the dualism between State and civil society
as it was diagnosed by Stein, a triangular relationship between the State,
the economy, and society has emerged today. 190 To what extent this
system is stable or can be manipulated by State legislation is a con-
stitutional question which cannot be discussed here.
Just as the question of justifying taxation formerly led to the ques-
tion of the justification of the State (a justification which is presup-
posed here), today it leads to the question of how to justify the triangular
relationship between State/economy/society. For this it is not suffi-
cient to show that the antithesis of State and economy can be understood
186. Ibid., p. 113. "The public does not seem to be very much interested in a resolu-
tion of the conflict . . . . The public likes competitive power. . . . " Ibid., p. 120.
187. Ibid., p. 121.
188. Ibid., p. 124.
189. The situation is described very differently in Galbraith, The New Industrial
State (1971). According to Galbraith, "The industrial system, in fact, is inextricably
associated with the state. And the state, in important matters, is an instrument of
the industrial system." Ibid., p. 298. Of course it is correct that the State and big
business often are dependent on each other. Galbraith fails to recognize, however,
the opposition existing between them. The seductive thought of the unity of a managerial
class in State and economy (to which Burnham earlier submitted, see note 166 above),
or in Galbraith's language of a "technostructure," obscures his power of observation.
More balanced is Herman's view, who shows that the influence of the State at least
in the United States has remained minor. See Herman, note 165 above, pp. 162, 244.
190. Habermas localizes the individual simultaneously in the "private sphere" and
the "public," and comes, therefore, to a division into four respective sectors. See
Habermas, note 174 above, p. 471. The relationship of State and economy, too, is
understood in a different manner in Habermas' work than it is presented here.
as a system of separation of powers, and therefore as a limitation of
power. Limitation of power certainly is desirable, but it could be at-
tained through means other than by placing the economy as an in-
dependent power opposite the State. It cannot be ignored that the
holders of power that is balanced against the State here are legitimized
in a manner other than that which would correspond to our political
principles and that their dealings are based on the principles of profit,
a motivation which would not be approved by our moral convictions

for political dealings. The choice and control of business management
through representatives of the shareholders or, where co-determination
has been introduced, through boards representing shareholders as well
as employees may be adequate or not; in any case, it is not a democratic
legitimization. Moreover, the capacity of shareholders or boards to
control managing directors is relatively insignificant. Current manage-
ment decisions are usually reserved to the managing directors. In addi-
tion, the extent of the possible controls is limited in reality by the in-
formation lag between management and shareholders or boards.191 As
concerns the relationship between profit and morals, it is clear that
profit motivation does not by itself exclude moral action. It has been
rightly noted that Adam Smith presupposed morality as self-evident.192
Economic theory also has abandoned the notion that economic activ-
ity necessarily entails profit maximization. It is only essential that the
business enterprise, at least in the long term, covers it costs, because
otherwise it would perish; apart from this, other motivations are
simultaneously possible and usual.193 The entrepreneur or chief executive
normally will be concerned, for example, about the welfare of his
employees independently of whether that is reflected positively on his
balance sheet. The problem, however, is that all of this is not
191. "The directors come to realize that their power derives from the management
and not from the stockholders. They confine themselves, accordingly, to a ritualistic
approval of management decisions." See Galbraith, note 175 above, p. 85. Galbraith
does not explain, however, on what kind of data he bases his generalizations. More
differentiating and more plausible is Herman's view that "Top inside managers nor-
mally dominate the board selection and outside directors are best viewed as having
various degrees of latent power. Outsiders on the board normally defer to and sup-
port the top inside managers, but they do have legal responsibilities to the company's
owner." See Herman, note 165 above. See also Rathenau, note 163, p. 13.
192. See Recktenwald, Adam Smith, Sein Leben und Werk (1976), p. 62; Reckten-
wald, Wiirdigung, in Smith, Wohlstand der Nationen (German translation), note 43
above, at XV, XXXV.
193. For example, business growth, maximization of turnover, general power in-
terests, etc. are mentioned in the context. Herman shows, however, that the profit
motivation always remains at the forefront. See Herman, note 165 above, pp. 85, 257.
KLAUS VOGEL 51
guaranteed. There are examples enough of ruthless, self-serving, ex-
ploitive business dealings that are oriented solely on profitmaking. And
secondly, general and particular interests (morality and profitmaking)
can coincide, but they also can stand in contradiction to each other.
In a situation of intense competition it may occur, for example, that
a business that fails to maximize profit will become competitively defi-
cient because it is not able to invest to the same extent as its com-
petitors. In such a situation the business must in fact, in the interest

of survival, de-emphasize considerations other than profitmaking.
Within the realm of the State, in contrast, moral dealing is not only
possible, it is considered obligatory. Political parties compete to deter-
mine who is better qualified to recognize and realize the public in-
terest. For political success, notwithstanding, it is not solely decisive
to have the morally correct goals and the ability to accomplish them.
There are two reasons for this, a cognitive and a pragmatic one. First,
it is not easy to evaluate which goals are in the public interest, whether
a politician is capable, and whether his efforts are successful or not.
The individual as well as the public can be mistaken or can be deceiv-
ed; a clearcut answer will only be possible in exceptional cases. Sec-
ond, to attain the goals the politician must obtain a position in which
his abilities can be applied. Good intentions are meaningless if the will
and the ability to obtain power do not go along with them. In a
democracy a politician above all must win elections. As Machiavelli
observed, however, in attaining power morality is not necessarily
beneficial."4 This fact is a consequence of conditions requisite to political
activity, not of character weaknesses of individual politicians. It is
unavoidable in any State, even in a democratic one. The politician,
who intends to pursue a particular goal must in turn seek allies for
this purpose. He must support the goals of these allies, even if not
all of them are his own goals. He must be loyal to them, must not
betray them, and occasionally he must help to downplay mistakes of
his allies or proclaim defeats to be successes. Finally, he must reward
his followers for faithful service and must support his allies to insure
that their followers likewise are compensated. Whether in the end any
of his original goals remain will depend on his skill and on his luck.
If he fails to utilize such means, however, it is even less likely that
any of his goals will be attained.
Therefore, though according to public standards politics should be
as moral as everyday activities should be, in reality it is not and can-
194. See Machiavelli, Jiote 97 above.

not be so.195 Gordon Tullock has shown in a simple example that the
chances of a politician to advance and to obtain power—thus, to ac-
complish political goals—are greater the more he is prepared to subor-
dinate morality and public interest to his own interests in obtaining
power.196 In all situations in which the politician must choose between
a solution advancing the public interest and a solution advancing his
personal interests (for example either to devote himself to a popular
but harmful goal or to an unpopular truth), the politician that places

his own interest first has the advantage, and will advance more rapidly.
As a result, the higher the political level, the larger the proportion
of politicians giving priority to accumulation of power rather than to
morality.197 This applies to all parties and it applies to bureaucracies
in the same manner.198 Moreover, alternatives like the one just described
195. Based on this insight in the past few decades an entirely new branch of science,
public choice, has developed, primarily in the United States. "Public choice can be
defined as the economic study of nonmarket decision-making, or, simply the applica-
tion of economics to political science. The basic behavorial postulate of public choice,
as for economics, is that man is an egoistic, rational utility maximizer."See Mueller,
"Public Choice, A Survey," Journal of Economic Literature (1976), p. 395; Mueller,
Public Choice (1979), p. 1. Fundamental works in this direction of research include:
Downs, An Economic Theory of Democracy (1957); and Buchanan & Tullock, The
Calculus of Consent (1962). For an overview, in addition to Mueller, see Frey, "State
and Prospect of Public Choice," 46 Public Choice (1985), p. 141. An impressive state-
ment about the fundamental position can be found in Buchanan & Tullock, as cited
above, p. 305:
In developing this analysis we are not, in any way, glorifying the pursuit
of self- or group interest by political means. . . . Our approach is based
on the idea that, insofar as this pursuit of self-interest does take place,
it should be taken into account in the organisation of the political
constitution.
Newer works from the area of public choice suffer sometimes from their calculations
being based on a too onesided identification of self-interest with economic interest,
especially profit interest, and from an underestimation of the importance of power
interests. Less onesided, but somewhat tedious is Whynes & Bowles, The Economic
Theory of the State (1981). Regarding the behavior of voters and politicians see ibid.,
p. 58.
196. See Tullock, The Politics of Bureaucracy (1965), pp. 21, 82. This precisely
thought-out book infortunately has received not as much attention as it deserved.
Although Tullock is one of the founders of the public choice branch of research, see
note 195 above, and has worked and continues to work in this field, the important
book cannot be attributed to the research direction of public choice theory and it
seems not to be utilized by its authors. Similar to Tullock's view, see also Buchanan,
The Limits of Liberty (1975), p. 156.
197. See Tullock, note 196 above, p. 21.
198. Tullock treats the democratic system as a subcategory of "bureaucracy" (where
the authority, the "sovereign," is a group), this explains the title of his book. The
classification serves analysis, but it may well have contributed to the fact that the
work has received so little attention from those it actually should interest.
KLAUS VOGEL 53
arise very often in politics and in administration; this is because public

interest, as mentioned above, is difficult to determine and errors in
identifying the public interest cannot be measured. Mistaken political
decisions, therefore, can be easily veiled and failures disguised as suc-
cesses. In totalitarian bureaucracies these possibilities are particularly
numerous.
Large enterprises, of course, are bureaucracies, as well. Economy,
however, has a standard by which it measures behavior, and deter-

mines whether behavior accomplishes its purpose adequately and to
this extent is "correct." This standard, which politics lacks,199 is pro-
fit and loss. Certainly, managers will attempt to cover up their mistakes
just as politicians do, and it can be assumed that here as well a group
solidarity exists within which many members are willing to support
the other in such attempt. At the latest, however, when the business
(or the branch of the business) sustains losses, the inability and errors
cannot be covered up any longer and the sanction occurs, the manager
has to be replaced. If this is not done, the business runs the risk of
collapse in the end. As far as lower level employees are involved, their
superiors will dismiss them in their own interest. Thus economy has
a rational mechanism to reward ability and "correct" behavior, and
to punish inability and error. Advancement in the economic hierarchy
presupposes not only the ability to appear capable (as does politics);
it also presupposes measurable success—or at least the absence of failure.
It is by way of this mechanism that the economic system, being profit
oriented, is necessarily more efficient than any political system. Not
only the successes of western "capitalism," but the continuous failures
of socialist States in their attempts to organize production and distribu-
tion make this evident. Even in non-socialist States economically weak
points often can be traced back to political intervention, as e.g. in
Great Britain following the Second World War or in the once thriving
country of Argentina.200
The higher rationality of the economic system, to be sure, is only
a limited rationality. It is obtained through a sacrifice which should
not be taken too lightly: in measuring success and failure, goals that
199. See Vogel, "Der Sozialstaat als Steuerstaat," in Randelzhofer & Sii/3 (ed.),
Konsens und Konflikt (1985), p. 133.
200. For a basic discussion of the "theory of State failure," see Recktenwald, "Ur-
sachenfur Unwirtschaftlichkeit im Staatsbereich," in Reform offentlicher Leistungen
(1978), p. 15; Recktenwald, "The Public Waste Syndrome, A Comprehensive Theory
of State Failures," in Hanusch (ed.), Public Finance and the Quest for Efficiency
(1984), p. 11.
cannot be measured in monetary terms are not taken into considera-
tion. Behavior according to economic principles thus leads necessarily
to the disregard of non-economic interests, especially of public interests.
In light of this fact distortions arise such as concentration of power,
the failure to make investments which would be desirable from the
point of view of the public, an unjust allocation of economic results,
unsatisfactory provision for situations of need. To avoid or to com-
pensate for such distortions inevitably is the task of the State. The

State has never limited itself to guaranteeing security and freedom ex-
clusively (and to creating the prerequisites for economic activity—a
currency, a legal order, a transportation system, and other infrastruc-
tures), but has always set the outer limits for private economy and
has maintained and enforced the requirements of general welfare.
Originally, this was accomplished primarily through criminal statutes
and through the classical industrial regulations. When these traditional
means no longer were sufficient, however, when economic injustice,
hardship, and need increasingly arose, and the enlargement of economic
power demanded a countervailing force, the State assumed these roles
as well. It became the "welfare State."201 By and large, this much may
be said, the State has been rather successful in accomplishing this task.
If, in conclusion, we summarize and systematically order the usual
objections against the "triangle-system" of State, economy, and civil
society, or more precisely, against the autonomy of the economy as
a prerequisite of this system, we find that there are three: first, that
it is not morally acceptable to build a social system on self-interest;
second, that private business creates and encourages inequality and,
therefore injustice; and third, that the economic decisionmakers are
not selected and approved democratically. Each of these criticisms is
serious, but for each of them there are countervailing considerations,
201. The German literature regarding this term ("Sozialstaat") is boundless. For
an overview see the articles in Forsthoff (ed.), Rechtsstaatlichkeit und Sozialstaatlichkeit
(1968) and the review of this book by Suhr, Der Staat (1970), p. 67. See also Badura,
"Sozialstaatlichkeit und Sozialrecht," Die Sozialgerichtsbarkeit (1980) p. 1; Herzog,
"Die Verfassungsentscheidung fur die Sozialstaatlichkeit," in Maunz, Diirig, Herzog,
& Scholz, Grundgesetz, Kommentar, Art. 20, p. 295 (looseleaf book); Kempen (ed.),
Sozialstaatsprinzip und Wirtschaftsordnung (1976); Scholz, Sozialstaat zwischen
Wachstums- und Rezessionsgesellschaft (1981); Stern, Das Staatsrecht der
Bundesrepublik Deutsch land, Vol. I, 2nd ed., p. 872 (1984); Stratenwerth, "Zum
Prinzip des Sozialstaats," in Festschrift K. Eichenberger (1982), p. 81; Wannagat,
"Der Sozialstaat im sozialen Rechtsstaat," Festschrift K. Jantz (1968), p. 55; Zacher,
Sozialpolitik und Verfassung im ersten Jahrzehnt der Bundesrepublik Deutschland
(1980), p. 673; Zacher, "Was konnen wir u'ber das Sozialstaatsprinzip wissenl" in
Festschrift H.P. Ipsen (1977), p. 207.
KLAUS VOGEL 55
which, though they do not negate them, at least outweigh them. Self-
interest as a motivation for private business is balanced by the consid-
eration that as a result of a paradox in the system, it is precisely deal-
ing in self-interest which best promotes the benefit of the others, as
Hegel correctly observed.202 In other words, activity motivated by sub-
jective self-interest works objectively to the benefit of the general public.
If we compare the results of private economic systems with those of
socialist bureaucracies operating under otherwise equal conditions, this

is self-evident. Second, the inequity generated by a system of private
business can be alleviated in part through corrections implemented by
the State, and it can be outweighed in part by the higher extent of
freedom granted through such a system. If, in doing this, freedom and
equality are held in an equitable balance—this is a continuous task,
of course—the result will be not only tolerable, it will be preferable
to a condition in which equality alone is attained at the cost of liberty.
Finally, as far as the criticism of inadequate democracy is concerned,
we should consider the basic goals of democracy. Democracy should
in the first place ensure that each desire and each idealistic goal can
be brought forward and second that each such desire or goal has the
chance to prevail through argumentation. In no system, however, can
economic needs be raised and satisfied more efficiently than in the
market system, and as far as inadequacies occur, which is inevitable,
the possibility always exists to remove them through State action. All
in all, this system is not only exceptionally efficient, but can also with-
stand moral scrutiny. Indeed, due to the freedom it guarantees, it is
superior to competing systems. (The danger that the non-state/non-
economic area, civil society, will be increasingly restricted and swallowed
up is another matter. This problem is not solely the result of the dynamic
attributes of the economy, but is no less the outcome of a cancerous
growth of the "Subsystem State," or more concretly, of bureaucracy.
With respect to this tendency the issue is to maintain the free nature
of "civil society" through an effective protection of the basic rights
guaranteed by the constitution).
The efficiency, freedom, and justice of such a system are based of
course upon a difficult and constantly-endangered settlement of political
needs and interests that must constantly be balanced against each other
202. Note 160 above, § 183: "The egoistical purpose in its realization . . . creates
a system of mutual interdependence in which the subsistence and well-being of the
individual and his legal existence is interwoven with the subsistence, well-being and
rights of all, has its basis therein and is real and secured only in this context." See
also §§ 185, 186.
anew. It is, therefore, that much more important that State and economy
are restricted to their respective areas of competence so that they do
not undermine the advantages of their separation and in the end, only
disadvantages remain.203 An influence of the economy on the State
through means other than those pertaining to citizen's rights would
introduce foreign motivations into the political process, and would
adulterate political decision making. Direct participation of the State
in economic production and distribution on the other hand is not only
generally inferior to business activity,204 but also leads to a questionable

interference of motives, often entailing the consequence that the State
authorities no longer are in a position to perform their control func-
tions in an unbiased manner. Good examples of this problem can be
found in areas such as energy, airport planning, and armament.205
V. JUSTIFYING TAXATION IN THE TRIANGLE STATE/ECONOMY/SOCIETY
Taxes transfer money value from the disposition of the economy

into the disposition of the State.206 To the extent individuals are taxed,
taxing requires justification, as mentioned at the outset of the article,
in the first place because it intrudes on the personal rights of those
taxed. We can now add that to the extent legally incorporated enter-
prises are taxed, taxing requires justification because it touches on the
distribution of functions and weights between the State and the
economy. If this distribution is balanced, taxation can jeopardize the
equilibrium, and if it is not, this may provide a justification for tax-
ing, but it certainly does not dispense of the need for a justification.
Noneconomic goods are taxed only in exceptional cases, for example,
through the German wealth tax, in so far as it applies to goods not
utilized economically, e.g. works of art.207 Whether and to what ex-
tent such taxes are justifiable cannot be examined here.208
As far as taxes are levied on economic goods, they are justified ac-
cording to that which has been outlined above because they are an
203. See Vogel, note 199 above, p. 137.

204. See Hoffman, Die Lehre von den Steuern (1840), p. 28.
205. See Vogel, "Diskussionsbeitrag," in Veroffentlichungen der Vereinigung der
Deutschen Staatsrechtslehrer, Vol. 38 (1980), pp. 336, 337.
206. Of course it need not be emphasized that this is not intended to be a definition
of taxes, but a description of their function.
207. Estate and inheritance taxes belong in this category, too. However, it has been
discussed whether the estate tax should not be understood as a surtax on the life in-
come of the decedent. See Musgrave, note 1 above, p. 178.
208. See Vogel, "Kunsthemmnisse und Kunstforderung im Steuerrecht," in Bitburger
Gesprache, Jahrbuch (1977), p. 197; Heuer, Die Besteuerung der Kunst (1983).
KLAUS VOGEL 57
inexpendible element of the "triangular" system of State, economy,
and civil society—and it has been shown that this system in itself is
justified. Even more than the State of the nineteenth century, that of
the twentieth century in western democracies is a "tax State."209 It
leaves production to the economy and, therefore, depends on taxes.210
Its claim for taxes is legitimized—in this regard Lorenz von Stein should
be followed even today—because taxation returns to the State a por-
tion of the economic value that the State for its own part has assisted

in producing. That this justification includes an element of reciproci-
ty, should not deter us. Quid pro quo measurement of taxes according
to particular benefits received is neither intended nor implied. As has
been mentioned above, "reciprocity" in this broad sense was considered
possible and inoffensive by such eminent authors as John Stuart Mill
and, more recently, James M. Buchanan.211 A standard for measuring
individual tax burdens, however, cannot be derived from this kind of
reciprocity. The theory of justification of taxation cannot, therefore,
provide an answer to the question how to shape a just tax rate. With
regard to this question, all that is involved is how the total tax burden
shall be divided among taxpayers according to principles of individual
justice.
Stein's theory of the justification for taxes needs to be supplemented,
however. As shown above, among the commitments of the State to-
day, one is to protect important general interests against a principally
autonomous, efficient, but powerful economy and to correct the results
of economic self-regulation, when and where necessary. Consequently,
expenditures—and taxes to cover these expenditures—are justified, too,
if and as far as they are necessary to place the State in a position to
satisfy these "welfare State" commitments. In other words, in the
dispute between Stein and Wagner regarding State socialism,212 Wagner
was correct to a limited extent, but Stein was correct as far as he criti-
cized the indefiniteness and boundlessness of Wagner's terminology.
Above all, Stein should be followed resolutely in his contention that
the justification of taxation must have consequences for determining
its limits. Stein's taxing principles remain applicable to that extent.

210. Hoffman bases the fact that the State itself does not participate in the economy
directly on the reason that a State which participates in the economy is in danger
of not being in a position to act in an unbiased manner with respect to its competitors.
See Hoffman, note 204 above. See also the dispute between Schumpeter and Goldscheid
in Schumpeter, note 117 above.
211. See notes 54 and 58 above.
It is only necessary to rethink and adapt the principle of reproductiv-
ity. In so doing, we need not do violence to the basic principle in-
volved. In a cybernetic system of production it can be completely
justified to consider the costs of feedback as well as the costs of measures
induced by feedback as part of the costs of production. They do, of
course, not contribute directly to the product, but they do contribute
to the productivity of the system. Such expenses that serve the welfare
State in steering the system can be quite justifiably understood as

reproductive in Stein's terminology.
To be sure, by far not every expenditure can be justified in this way.
Where the State apparatus is ineffective and officials merely administrate
each other reciprocally, where taxes are levied on citizens only to be
returned to them after deduction of administrative costs under another
label, where the welfare State relieves misery it created itself through
excessive taxation, where the State pursues tasks that private business
could accomplish more cheaply, perhaps even more justly—in all such
cases expenditures are not reproductive and, therefore, the taxes that
are levied to cover such costs are not justified. Stein has emphasized
expressly that a wasteful use of tax revenues and absurd expenditures
can never be justified.
A practical problem remains. Whether a State expenditure has a
"reproductive" effect or whether in general it does not, cannot be
proven exactly, and it cannot be calculated. Stein was aware of this.
To him, the principle of reproductivity was not a matter for calcula-
tion. He understood the principle as a moral and legal one. His critics
from the side of economics in general failed to understand this.213 Ac-
cording to Stein, reproductivity is to be determined in a "statesmanlike"
manner, not as a matter of accounting (we should note, by the way,
that the "statesmanlike" judgment quite appropriately might be made
by a judge). Proof of reproductivity for each individual State expen-
diture would be impossible, and is not what is intended. Economic
production and distribution is unthinkable without a broad spectrum
of State activities. Normally, therefore, a presumption exists that an
expenditure is reproductive. This presumption can be rebutted in an
individual case only if it can be established convincingly that certain
expenditures are excessive—for example as a result of waste or a
senseless recirculation.
The "secret tax revolt," however, is an indication that the presump-
213. See notes 135 above. Even if Stein's field of work extends over a number of
individual disciplines, and is truly "interdisciplinary," it nevertheless should not be
forgotten that he was basically trained as a lawyer.
KLAUS VOGEL 59
tion today has reached the limits of its capacity. As far as tax claims
are involved, citizens behave towards their State as they would before
a tyrant to whose power they are forced to acquiesce, but of whose
moral right they are not convinced. This is certainly understandable
in view of a "State quota,"214 which, in Germany for example, by
far exceeds 50% of national income. Experience as well as the systematic
views presented above indicate that the efficiency of the State is in-
ferior to that of the market economy. Experience and probability,
therefore, speak against the assumption that the contribution of the

State to economic production could be larger than the contribution
of the economic sector. At least at the point at which the State's share
of values produced reaches 50% the burden of proof for the applica-
tion of the principle of reproductivity necessarily must reverse. One
may argue whether this reversal should be made dependent on the State's
share of national income, of net social product at market prices, of
gross national product, or of some other similar factor. What is decisive
is that beyond a particular limit justification for the volume of State
expenditures no longer can be presumed.
If this limit is reached, taxes exceeding this limit still may be justified
if their reproductivity can be shown. This, however, will be possible
only in exceptional situations. It may be possible, for example, if such
taxes are levied for a temporary and limited need and, therefore, in
general the presumption of reproductivity can continue to be relied
upon. If a justification on this basis cannot be attained, taxes still may
be justifiable according to the older—"rough"—benefit principle, if
the prerequisites of such a justification, the possibility to allocate in-
dividual benefit and a measurement of the tax payment according to
the size of the benefit, exist. Under such exceptional conditions the
benefit principle is not deprived of its persuasive force by the theory
of tax justification discussed here. For the majority of taxes, however,
such conditions do not exist. Consequently, the benefit principle will
be applicable only in very rare situations.
That taxes which cannot be justified morally should not be levied
does not need to be emphasized. If the citizen can be convinced that
the level of his tax burden does not result from the "insolence of of-
fice"—the parliaments—but that his taxes are necessary for State func-
tions and that they are justified, only then there is a chance that the
"secret tax revolt" may find its end.

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THE JUSTIFICATION FOR TAXATION:

I. THE SECRET TAX REVOLT

THE TIME IS RIGHT TO reconsider how taxation can be justified. To-

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5. Regarding literature on tax justice in Germany, see, Tipke, Steuergerechtigkeit

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9. See Recktenwald, "Umfang undStruktur der offentlichen Ausgaben in sdkularer

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II. MAJOR THEORIES FOR THE JUSTIFICATION CONCERNING TAXATION

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Ages law according to which taxation was permissible only as an

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35. See Mann, note 21 above, p. 87.

As is known, some writers even equate taxes with insurance premiums,44

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52. See Rau, "Grundsdtze der Finanzwissenschaft, Zweite Abtheilung," in:

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Grundprinzipien der Steuerlehre," 19 Zeitschrift fiir die gesamte Staatswissenschaft

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68. Ibid., pp. 216, 436.

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84. Ibid., p. 12.

through the market." Applied to tax justification, this argument seems

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III. JUSTIFICATION FOR TAXATION AND THE CONCEPT OF

The development of the theory of justification for taxes as described

93. See Warren, note 5 above, p. 1090.

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100. See Brunner, note 25 above.

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foundations of the fiscal system created during the nineteenth century

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116. Ibid., Vol. I, p. 26.

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124. Ibid., p. 350.

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143. See Wagner, "Finanzwissenschaft und Staatssozialismus," Zeitschrift fur die

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In summary, Stein justifies taxation vis-a-vis "individual in-

153. Ibid., Vol. Ill, p. 364.

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166. See Burnham, The Managerial Revolution (1941).

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but, more or less, there is an equilibrium between them.186 The expan-

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194. See Machiavelli, Jiote 97 above.

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arise very often in politics and in administration; this is because public

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