Essay Introduction

Francis Adams Truslow, former president of the New York Curb Exchange, addresses the precarious balance—the "vital margin"—upon which a free economy rests. Writing in 1950, he warns that taxation is merely a symptom of the underlying disease: excessive government spending. He specifically identifies the danger of tax-exempt government bonds, arguing that they seduce capital away from productive private enterprise to finance state expansion. His warning that "freedom will die in the ruins of the Temple" if wage earners disregard property rights remains a stark caution in an age of increasing class warfare and redistribution.

The Vital Margin

by Francis Adams Truslow

IN our economic basis for freedom, countless men own the productive enterprises—the mines, the farms, the factories, the wells, the offices, and machinery—tools for the production of those goods and services which they and all others need and use. They created and own these tools and will retain them so long as they can be used on a self-sustaining and profitable basis—that is, so long as they are productive of more than they consume. When governments, to meet their expenditures, seize part of this difference between production and consumption, they reduce the margin by which these enterprises exist, the margin necessary to induce men to take the risks or expend the energy to create more. Taxation is a tide in the stream which laps at the foundation of our freedom.

But taxation is a result and not a cause. Governments do not tax in order to store up resources. They tax to pay expenses. Strong currents of taxation which threaten our freedom are not necessarily our most dangerous enemies. The extravagances and ill-considered expenses of government should receive first consideration. We should fear taxation and attack the spending which generates it.

These are complex enemies. If we spend and do not pay our debts through taxation, then our money loses its value; and our earnings and savings disappear in the vast fraud of inflation. What we collectively spend must be paid for, regardless of the tax required; therefore, our public spending must be tested by the same stern scrutiny we apply to our individual spending. Even though that spending is planned in the name of our inherent desire to help others, it must not be allowed to rise and swamp the sources of our freedom.

There is a by-product of high public spending, and consequent high taxation, which should not escape our fears. If taxes are high, then the power to exempt income from taxes becomes a potent weapon of those who would build an all-powerful government. In recent years we have seen vast public works supplant vast private projects through the simple device of financing those works by the strong attraction of tax-free "investment." Government has, by the device of tax-exemption in times of high taxation, induced individuals to "lend" it their savings with which to acquire great chunks of private enterprise.

Here is indeed an insidious enemy of free men. When we in the securities business expend our efforts in the sale of tax-exempt bonds, we are often accepting attractive immediate compensation for work which can ultimately destroy our freedom. I think we pay too little attention to this problem.

Failure to understand what makes our economy work serves to undermine private ownership and personal freedom. The wage earner who disregards the property rights of those who provide his tools, and demands all of the product as his "rightful share" is like blind Samson. His freedom will die in the ruins of the Temple whose pillars he has pulled down.

The public official who fails to realize that government cannot spend anything except a share of the margin between the production and the consumption of its people is a man to be feared as an enemy of liberty.

The citizen who calls on government to supply him with security from the cradle to the grave, thereby encouraging government spending, is a danger to himself and his fellow citizens. If his pleas are successful, he can lose his freedom and gain no security in exchange.

Men of greed and arrogance, who exercise their individual power as businessmen, labor leaders, or politicians to create dissension, ill feeling, and dissatisfaction within our system of private ownership and personal initiative and competition, are men to fear and abhor. They can both destroy our freedom and take control of our lives.

About the Author

Francis Adams Truslow (deceased) served as president of the New York Curb Exchange. "The Vital Margin" is from an address before the Texas Group, Investment Bankers Association of America, San Antonio, Texas, May 4, 1950. It was also published in 1950 by the Foundation.

Attribution

Truslow, Francis Adams. "The Vital Margin." In Essays on Liberty, Vol. 2, 202-204. Irvington-on-Hudson, NY: The Foundation for Economic Education, Inc., 1954.