Tag Archive for: Adam Smith

What House Of Dragon Can Teach Us About Power And Wealth Creation

House of Dragon, like its predecessor Game of Thrones, is The Godfather of epic fantasy. Westeros is a land where power rules and individual rights do not exist.


The first season of HBO’s House of Dragon is nearing its conclusion, and the Game of Thrones prequel has not disappointed.

Based on George R. R. Martin’s novel Fire & Blood, the new series depicts House Targaryen’s efforts to rule the Seven Kingdoms amid its own internal power struggles. The story takes place about 170 years before the events depicted in Game Thrones and centers on Rhaenyra Targaryen, a princess who’s named heir to the Iron Throne by her ailing father King Viserys. This puts her at odds with her uncle Daemon (Matt Smith) and later her infant brother, who also have claims to the throne.

While I was initially skeptical that House of Dragon would bring back the magic of Westeros, the series has managed to live up to the hype (so far). The show’s writing and acting are superb, and just like GoT, the series explores power and morality through the gritty lens of realism. The realism is conveyed not just through the show’s ample sex and violence, but also the promise that the hero might actually not win or may not do the right thing. House of Dragon, like its predecessor Game of Thrones, is The Godfather of epic fantasy.

Viewers may be pleased to notice that, with the exception of the size of Targaryen dragons, almost nothing has changed in the Seven Kingdoms, even though nearly two hundred years have passed. Armies still fight with swords and arrows. Most of the people are still poor. Soldiers ride horses. Farming is presumably the primary occupation for the vast majority of people who are not lords or ladies.

To understand why so little has changed in Westeros, one need only look to our own world. Though many of us have personally witnessed massive change and innovation in our own lifetime, this was the exception, not the rule, in history.

Economist Brad Delong has noted that the standard of living didn’t change much for most of the last two thousand years, and GDP figures from Our World in Data confirm this.

In 1 AD, the GDP of the entire world was less than $182 billion (in 2011 US dollars). A thousand years later, global GDP was higher, but not by much—an estimated $210 billion. A few hundred years later, the world’s GDP was actually lower. Four hundred years after that, in 1700, the world’s total GDP was still only about $640 billion.

In other words, the world had changed very little over a period of 1700 years, at least in terms of material wealth.

That changed the next century, however. By 1820, global GDP had increased to $1.2 trillion. By 1870 it was $2 trillion. On the eve of World War I, global GDP was $4.74 trillion and by1950, despite the two most catastrophic and deadly wars in human history, it was up to $9 trillion. By 1998, it was $58 trillion and by 2013 it was $101 trillion.

The evidence for this miraculous growth in wealth is visible all around us. From automobiles and computers, microwaves and laundry machines, to sunglasses, TVs, and cell phones, most middle-class families own goods that were scarcely imaginable a century ago. Things as vital as toilet paper, toothpaste, and hot showers are available to most of the people in the world.

It’s no coincidence that the rise in material wealth the world witnessed over the last 250 years coincided with the global rise of capitalism.

When Adam Smith published The Wealth of Nations in 1776, he offered the world a roadmap to wealth creation. It was surprisingly simple. Peace and trade—not brute force, coercion, or the yolk of slavery—was the formula.

“Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things,” Smith wrote in The Theory of Moral Sentiments.

The formula might be simple, but its execution is not. The world of Westeros shows us why.

While many of the characters in Game of Thrones and House of Dragon are interesting, and some are even good, it’s impossible to miss that Westeros is a land defined by war, injustice, power, and plunder.

In the first season of Game of Thrones, we see the Crown is basically bankrupt. King Robert is spending money the Crown doesn’t have, and “beggaring” the realm in the process, placing an immense burden on his people (who will eventually be the ones to pay off the Crown’s debts). Over the course of eight seasons, viewers witness what is largely a bloody power struggle to rule.

House of Dragon offers its own examples. We quickly see that the Crown is a source of aggression, not benevolence. In the very first episode, Daemon Targaryen, the king’s brother, descends on Flea Bottom (the most poverty-stricken party of King’s Landing) with his Gold Cloaks (i.e. the city watch) to bring “law and order” to the district.

“My brother’s city has fallen into squalor. Crime of every breed has been allowed to thrive,” he says. “No longer. Beginning tonight, King’s Landing will learn to fear the color gold.”

In the darkness, men are accused by the Gold Cloaks—”thief!” “raper!”—and rounded up. They are not tried, but executed on the spot. Daemon himself takes at least one man’s head. All it takes is the accusation from a Gold Cloak.

While there is some fuss the next day over Daemon’s actions, the king’s council ultimately overlooks the carnage, reasoning that Daemon’s actions, draconian though they may be, project strength and power.

This is why nothing changes in Westeros. It’s a land where power rules and individual rights do not exist. Whatever wealth people manage to accumulate can simply be taken from them by anyone—whether it be their lord, pirates, or the Crown itself—who has more power than they do. The king’s justice is rarely to be found.

Adam Smith was correct when he observed that the formula to wealth creation is surprisingly simple: easy taxes, peace and the adequate administration of justice. But Westeros shows us this is hardly easy to achieve, especially where power is concentrated and those who wield it are rarely held accountable.

AUTHOR

Jon Miltimore

Jonathan Miltimore is the Managing Editor of FEE.org. His writing/reporting has been the subject of articles in TIME magazine, The Wall Street Journal, CNN, Forbes, Fox News, and the Star Tribune. Bylines: Newsweek, The Washington Times, MSN.com, The Washington Examiner, The Daily Caller, The Federalist, the Epoch Times.

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EDITORS NOTE: This FEE column is republished with permission. ©All rights reserved.

Adam Smith’s Wealth of Nations and the FairTax by Rep. Dave Brat (VA-7)

Adam Smith, the father of economics, published An Inquiry into the Nature and Causes of the Wealth of Nations nearly 240 years ago[i]. Soon after, an extraordinary flourishing of innovation and human well-being took off and transformed the globe. According to economist Deirdre McCloskey, the average American today is roughly 30 to 100 times better off than our ancestors in 1800[ii], the point when humanity began to escape crushing poverty. Notwithstanding modern prosperity, however, human nature hasn’t changed much. Smith’s insights remain relevant.

The Wealth of Nations considers taxation in Book V, Chapter 2: “Of the Sources of the General or Public Revenue of the Society.” In the prior chapter, “Of the Expenses of the Sovereign or Commonwealth,” he describes the primary functions of the national government. Some—like defense—need to be paid for by general revenue, while others—like transportation infrastructure—can be built and maintained with fees paid by users.

Revenue policy should fund the necessary expenses of the government. Not to benefit this or that industry. Not to advance social objectives. Certainly not to suppress political speech.

Smith set out four goals for evaluating tax options. First, tax contributions should be proportionate to abilities. Second, the rules should be certain and not arbitrary. Third, taxes should be levied when and how its payment is most convenient. Fourth, collection should minimize administrative overhead.

He then evaluated possible tax bases using those principles: rents of land and houses, profits, wealth, wages, head taxes, and consumption. He concluded that the ideal tax bases are residential property and consumption, particularly on luxury goods.

What does Adam Smith have to do with the FairTax? Everything. Setting aside property taxes—a state and local issue—consider how his principles relate to a consumption tax like the FairTax.

Is it proportionate to abilities? Yes. Those who earn more also consume more, thus contributing proportionately more to the general revenue. Savings—which our current tax system discourages but the FairTax would not—provide no current consumption benefits. They are deferred consumption, which in the meantime enables others to borrow to finance education, infrastructure, factories, and much more while also reducing the trade deficit.

Is the FairTax certain and not arbitrary? Yes. Everyone pays the same, known rate on consumption.

Is it convenient to pay? Yes. Merchants include the tax in the prices of final goods and services, which consumers pay all at once. Businesses simply remit the revenue to the government from time to time.

The FairTax also minimizes administrative overhead. The U.S. has around six million businesses.[iii] Not all would collect revenue under the FairTax, since many don’t sell directly to consumers. Current tax law requires the processing of six million business returns, 150 million individual and household tax returns[iv] (some overlap), and various trust, foundation, and other returns that are processed today, all under a complex, burdensome, and unFairTax code.

A broad-based consumption tax like the FairTax has other benefits. It eliminates the bureaucratic discretion that enabled the illegal and corrupt targeting of political speech, as the Richmond Tea Party experienced first-hand. Less taxation on productive activities yields greater physical and human capital investment by businesses and individuals, which makes workers more productive, boosting their compensation and standards of living while also increasing returns to saving.

It eliminates a major source of favor trading between Congress and big businesses. The concentrated interests of businesses associations create enormous pressure for Congress to provide tax preferences. The FairTax dramatically reduces the ability of political insiders to manipulate the tax system.

After nearly a decade of poor economic performance, we need comprehensive, pro-growth, simplifying tax reform like the FairTax. That’s why I’m a proud cosponsor of H.R. 25. To fully restore the American Dream, however, we must also pursue major regulatory and spending reforms.

We can have even more of the market-tested innovations that improve our lives and that would have astounded Adam Smith and our ancestors. Smart policy reforms—like the FairTax—can clear the path.

[i] http://www.econlib.org/library/Smith/smWN.html

[ii] https://www.aei.org/publication/perhaps-the-most-powerful-defense-of-market-capitalism-you-will-ever-read/

[iii] http://www.census.gov/content/dam/Census/library/publications/2015/econ/g12-susb.pdf, Appendix Table 1, pp. 7.

[iv] https://www.irs.gov/uac/SOI-Tax-Stats—Individual-Statistical-Tables-by-Size-of-Adjusted-Gross-Income, “All Returns: Selected Income and Tax Items: 2013”

ABOUT CONGRESSMAN DAVE BRAT

Congressman Dave Brat represents Virginia’s 7th congressional district, serving since 2014 when he won a special election. Brat is a member of the House Budget Committee, Education and the Workforce Committee, and Small Business Committee. He has a Ph.D. in economics, formerly was a professor of economics and chairman of the economics department at Randolph Macon College, and previously worked for the World Bank and Arthur Andersen.

EDITORS NOTE: To learn more about the FairTax please click here.