Joseph A. Schumpeter, “Erbschaftssteuer” (1928)

Schumpeter’s article is a short intervention in the late-Weimar fiscal crisis, framed by the Reich’s decline from the surplus of 1924 into renewed budgetary distress. He accepts that additional revenue will be necessary, but argues that the choice of taxes must be made in relation to Germany’s economic structure, not by borrowing attractive foreign examples or satisfying party formulas.

Deutschland bedarf einer großen Finanzreform, die seine staatsfinanziellen Probleme an ihren ökonomischen und politischen Kernen faßt.

English translation: Germany needs a great fiscal reform that grasps its public-finance problems at their economic and political core.

The essay narrows this broad demand to a single fiscal question: whether the Reich inheritance tax belongs among those levies that can be substantially increased without serious economic injury.

Wir wenden uns lediglich der Frage zu: Gehört auch die Reichserbschaftssteuer zu jenen Einnahmen, die so leicht auf dem Steuerobjekt lasten, daß sie ohne beträchtlichen Schaden wesentlich erhöht werden können?

English translation: We turn merely to the question: does the Reich inheritance tax also belong among those revenues that rest so lightly on the taxable object that they can be substantially raised without considerable damage?

Schumpeter’s answer is negative, but not because he treats inheritance as sacred in principle. His method is historical and situational. A tax that is defensible in one country or period may be harmful in another, because its effects depend on the level of capital accumulation, the use of proceeds, the state of credit markets, and the motives that sustain saving.

Sie kann im Jahre 1800 falsch und trotzdem im Jahre 1900 richtig, sie kann heute in Amerika oder England richtig und gleichwohl in Deutschland falsch sein.

English translation: It may be wrong in 1800 and nevertheless right in 1900; it may be right today in America or England and yet wrong in Germany.

This contextual reasoning structures his comparison with Britain. English death duties raise much more revenue, but Britain appears to Schumpeter as a more capital-rich economy and therefore a misleading model for Germany. Germany’s position is marked by lost foreign assets, reparations burdens, new labor-market pressures, high interest, and dependence on foreign credit that may not continue. In such a setting, the central public interest is not merely balancing the budget but preserving and accelerating capital formation.

The technical core of the essay distinguishes the tax object from the tax source. A wealth tax may be assessed on property yet paid out of income; an inheritance tax, by contrast, normally takes its source from the estate itself. If the state consumes the proceeds, capital is transformed into current income. If the state wishes to use the funds productively, Schumpeter argues that borrowing is usually superior, because debt service creates fiscal discipline and mobilizes savings more appropriately. Devices such as deferral, installment payment, or insurance may soften the damage, but they also make the levy resemble an annual wealth tax rather than a genuine inheritance tax.

Schumpeter then shifts from the existing stock of capital to the future rate of accumulation. The inheritance tax matters not only because it removes funds from estates, but because it changes the incentives that lead people to save rather than consume.

Die Erbschaftssteuer vermindert die Zuwachsrate des Kapitals, also das Kapital der Zukunft, nicht bloß um den Betrag, den sie in Anspruch nimmt, sondern außerdem noch dadurch, daß sie auf die Motivationen der Leute wirkt.

English translation: The inheritance tax diminishes the rate of increase of capital—that is, the capital of the future—not merely by the amount it takes, but in addition through its effect on people's motivations.

Here the article becomes sociological as well as fiscal. Schumpeter treats family provision, industrial continuity, and entrepreneurial ambition as historically powerful motives for accumulation. Even if modern corporate forms and changing family structures weaken these motives, Germany has not yet replaced them with equally effective mechanisms of saving. A heavier inheritance tax would therefore strike at one of the remaining restraints on present consumption.

The concluding section rejects refined compromises such as Rignano’s proposal to tax property more heavily at successive transfers. Schumpeter finds the scheme ingenious but fiscally inadequate for Germany: if it is to raise substantial revenue, it must burden early transfers heavily; if it waits for later transfers, it yields too little, while many industrial fortunes disperse within a few generations anyway. Since other taxes remain available, he sees no practical justification for a major increase in the inheritance tax. The article’s final force lies in this separation of fiscal analysis from ultimate doctrine: the objection is not a timeless defense of inherited property, but a dynamic argument about Germany’s need for capital formation.