The Classics Live On—A Concern Over Profit-Above-All Economics

It would be no exaggeration to say that there has never been a time when practical economics, or economics as a useful discipline, has been valued more highly than it is now.
In essence, an economy where making money is everything takes precedence. Anything goes to make a profit. The reality is that morality and corporate social responsibility are secondary.

Let us now humbly reflect on how economics, as a field of study, originally came into being and what its starting point was. We will focus not on everything, but on the relationship between taxes and tax revenue, which is most closely related to our lives.

Adam Smith's Enduring Masterpiece, The Wealth of Nations, and Taxes

Adam Smith (1723–1790) was an economist and philosopher (ethicist) born in Britain (Scotland), widely regarded as the father of economics. Perhaps nowhere in the world is Adam Smith as widely known as in Japan. His seminal work, "An Inquiry into the Nature and Causes of the Wealth of Nations," was translated and published in Japan as "Kokufuron" (The Wealth of Nations) in 1882 (Meiji 15). Since then, it is no exaggeration to say that virtually no book on economics has failed to mention Smith.
And when Smith is mentioned, many would likely respond, "He was the classical economist who first systematized the economic theory of 'laissez-faire.'"

Within Smith's "The Wealth of Nations," which laid the foundation for liberal economics, there is the following passage concerning taxes:

Excessive Taxes Lead to Reduced Revenue

"High duties and taxes on the importation of any commodity, will not only discourage importation, but will reduce the consumption of it in all the higher or lower branches of the trade. By not only taking less of the commodity from the merchant, but by discouraging him from bringing to market, we shall reduce the public revenue, which in many cases may amount to a much smaller sum than would have arisen from the highest duties and taxes."

If we were to replace the word "smuggling" in this passage with a modern equivalent, what would it be? The answer would likely be "tax evasion." While today, few developed nations, if any, would see their tax revenues significantly impacted by smuggling, in an era over 230 years ago, the economy was far smaller, and smuggling had a considerable effect on tax revenue. This is why Adam Smith addresses smuggling.

Heavy Taxes Reduce Consumption

It is clear that heavy taxes undoubtedly reduce consumption, and tax cuts stimulate the desire to consume. This remains an immutable theory even today.

We have a familiar, concrete example.
Though it is an older story, from April 1997, Japan's consumption tax rate was raised from 3% to the current 5%, an increase of a remarkable 66%. The government projected an additional revenue of 3.6 trillion yen in the first fiscal year (1998) due to the tax hike.
The results were disastrous. The tax increase dampened the public's willingness to consume, further exacerbating the economic stagnation. The government was thrown into a panic by the repercussions of its ill-considered tax hike. It is a case still fresh in our memories.

Meanwhile, a proliferation of schemes and techniques to avoid the tax increase, a veritable "this way and that way" of tax evasion, spread throughout the country.

Tax Cuts and Economic Stimulus: The Leading Policies of Nations

The first edition of "The Wealth of Nations" was published in March 1776, about four months before the United States declared its independence. It's a useful fact to remember.
This was an era without telephones, well-developed statistics, or much international exchange.
To think that "The Wealth of Nations," written by Adam Smith in an age of virtually zero communication and information, still stands proudly today evokes something close to awe. Of course, some classics contain content that is entirely inapplicable today and must be discarded for the most part.

While "The Wealth of Nations" is not entirely an exception, I want readers to know that there is much in the way of thinking from our predecessors that commands renewed respect.

Speaking of which, the Laffer Curve, central to "supply-side economics" during the Reagan administration—an economics focused on supply—illustrates the relationship between tax rates and tax revenue. In essence, it is nothing more than Adam Smith's theory of taxation (that as tax rates exceed a certain limit, tax revenue decreases).

Even now, the most potent economic stimulus measure common to all nations is "tax reduction." Japan also prioritizes tax cuts similarly. History is undoubtedly alive. Please learn the importance of studying the classics, not just chasing immediate gains.