TAXATION.

A Tax is a portion of the capital or income of individuals, taken from them by government, and placed at its disposal.

A tax may be either direct or indirect. It is said to be direct when it is immediately taken from income or capital; and indirect when it is taken from them by making their owners pay for liberty to use certain articles, or to exercise certain privileges.

A tax may be either general or particular; that is, it may either affect all classes indiscriminately, or only one or more classes.

Taxation is the general term used to express the aggregate of particular taxes. It is also the name given to that branch of the science of political economy which explains the mode in which the revenue required for the public service may be most advantageously raised.

PART I.—GENERAL OBSERVATIONS ON TAXATION.

Necessity of Taxation—Present System of Taxation originated in the decline of the Feudal System—Taxes estimated by Values, and not by Quantities—Every Improvement in the Arts, a means of enabling a Country to bear Additional Taxes—Opposite Effects of Moderate and Heavy Taxes—Fallacy of the Doctrine of those who contend that Taxes are not really lost to the Contributors, but that they are restored to them by the expenditure of Government—Erroneous Opinion of Locke and Quesnay with respect to the Incidence of Taxes—Maxims to be observed in the Imposition of Taxes —Excise Scheme of Sir Robert Walpole—Expense and Mode of collecting Taxes—Corvées.

It would be quite superfluous to enter into any lengthened arguments to show the utility, or rather necessity, of raising a revenue for the use of the public. Suffice it to observe, that security from foreign invasion, the speedy and impartial administration of justice, and the maintenance of good order and tranquillity, are absolutely indispensable to the successful exertion of industry, and to the advancement of society in the career of civilization and refinement. And when such is the case—when it is admitted on all hands, that security and good order are productive of universal advantage—and that, without them, there can be no considerable accumulation of national wealth—it is plain no individual can justly complain that he is made to contribute, in the same proportion to his means as others, for their attainment; or, which is the same thing, that he is made to pay his fair share of the sum required to procure the services of the soldiers and sailors necessary to repel hostile aggression; and to support the various institutions and public functionaries necessary to maintain internal peace, to promote prosperity, and to protect every citizen in the undisturbed enjoyment of his property and rights. It is certainly true that the public has frequently to contribute larger sums than are necessary for the ends of good government. But as this abuse must obviously originate either in the misconduct of administration, or in the defective political organization of the state, it does not properly come within the scope of our inquiries. In treating of taxation, the object of the political economist is not to inquire whether the revenue raised by the state exceed its necessary wants, or whether it be judiciously expended; but to point out the effect of taxation on individual and public wealth, and, by analysing the various methods in which a revenue may be raised, and comparing them together, to show which is most advantageous, or rather which is least injurious.

The scheme of taxation now in force in modern Europe had its origin in the decline of the feudal system.

According to the principles of that system, the lands of a country were held as fiefs of the crown, on condition of their possessors performing certain stipulated services; of which the obligation to support the sovereign when he took the field, with a body of retainers armed and maintained at their own expense, was by far the most important. The tenants in chief of the great fiefs, or those who held directly under the sovereign, were either originally invested with, or subsequently usurped, the prerogative of distributing justice in their respective lordships; and in those days the administration of justice, instead of being a source of expense, became, in consequence of the corruption and abuses with which it was infected, a considerable source both of influence and emolument. The expense of the clergy was either defrayed from the produce of their own estates, or by a tithe levied from the estates of others. And the labour of the peasantry, during a few days before and after harvest, sufficed to put the roads and bridges into that state of repair, which the depressed situation of commerce, and the little intercourse between the different parts of the country, seemed to require. It was not even necessary to levy a tax for the support of the monarch and his court. The rents of the crown estates, or of the royal demesnes which had not been granted to others, but which remained in the immediate possession of the sovereign, were generally sufficient to defray this part of the public expenditure. When the feudal system was in its vigour, the demesnes of the crown were, in most countries, very extensive; and the alienations occasioned by the profusion and facility of some princes, were compensated by the forfeitures and escheats that were always taking place.

The vicious nature of this system is too obvious to require being pointed out; and it had for a long series of years the most destructive influence over the peace and prosperity of Europe. But the progressive though slow advance of civilization ultimately occasioned its overthrow. Money payments were gradually substituted for personal services; and the establishment of standing armies in France^[1. It was on this occasion that the taille was first imposed in Franco. Hallam’s View of the Middle Ages, vol. i. p. 118. ] by Charles VII., and their introduction into other countries, entirely broke the power and spirit of the feudal aristocracy, and enabled the different governments to introduce a regular plan of administration, and to enforce that system of pecuniary contribution now universally established.

The amount of a tax is not to be estimated by the iulh or species of the produce which it transfers from individuals to government, but exclusively by its value. A heavy taxation consists in the abstraction of a large value, and a light taxation in the abstraction of a small value. When a fall takes place in the cost of producing any article, its price necessarily declines in an equal degree; and if the value of money continue invariable, its producers are obliged to dispose of a proportionally larger quantity to obtain the means of paying the same amount of taxes. But it is an obvious error to suppose, as is very commonly done, that the burden of taxation is consequently increased. The value paid by the contributors has remained the same; and it is by values, and not by quantities, that the weight of taxation is to be measured. If, owing to improvements in agriculture, machinery, or any other cause, two quarters of wheat, or two yards of cloth, were produced with the same expenditure of capital and labour now required to produce one quarter or one yard, it would be no hardship to have to give double the quantity of these commodities in payment of taxes.
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The want of attention to the principle now stated, has led to much erroneous reasoning on the subject of taxation. Even Smith made no sufficient allowance for the influence . of improvements in enabling a country to bear additional taxes. Nothing, however, can be more certain than that the produce of national industry taken by the government as revenue, may be regularly increased in every country in which the arts are progressive, without really adding to the burdens already imposed on the people. Every new invention and discovery, by which the production of commodities may be facilitated, and their value reduced, enables individuals to spare a larger quantity for the use of the state. The sacrifice made in paying taxes consists in the sacrifice of the labour and expense necessary to procure the money or produce with which to pay them, and not in the amount of such money or produce. To pay L. 100 or L.1000 to government at this moment, will cost a cotton manufacturer not less, perhaps, than fifteen or twenty times the quantity of cottons that would have sufficed to make the same payment in 1760. But as this reduction in the value of his goods has been occasioned by an equivalent diminution in the expense of their production, he is not thereby placed in any respect in a worse situation; nor is he really making a greater sacrifice now than formerly. It is, therefore, clear that governments have precisely the same interest as their subjects in facilitating production. Its increased facility affords the means of adding to the amount of the produce at their disposal, without really adding to the weight of taxation; whereas, on the contrary, a diminished facility of production must either diminish in an equal degree the amount of produce appropriated by government, or compel it to lay heavier burdens on its subjects. Public wealth, in short, is merely a portion of private wealth transferred to government; and the greater the amount of the latter, the greater will be the magnitude of the portion that may be conveniently spared for public purposes.

Though taxation be necessary, it should always be kept within the narrowest limits possible. The best taxes are those which are lightest; but there is none so light as not to be productive of an increase of toil, or of a diminution of enjoyments or of fortune. All taxes must ultimately be paid from the revenue of a country, or from its capital or stock. Perhaps there is no tax whose produce is not partly derived from both these funds. There can be no doubt, however, that by far the greater part of all taxes judiciously imposed, and not carried to an oppressive height, is paid out of revenue. The desire which every one has to preserve his place in society, stimulates most people to exert themselves to defray their taxes, either by increased industry, or by making a corresponding diminution in their expenditure, without allowing them to encroach on their capitals. But the power to make increased exertions, and to save from expense, though not easily defined, is not illimitable. And whenever this limit has been attained, that is, whenever the burden of taxation is not fully compensated by increased production or increased saving, it must encroach on the means of future production, and the country will then begin to retrograde. Taxation, when carried to this extent, is one of the severest scourges to which a people can be subjected. By diminishing capital, or the funds destined to support productive industry, it lessens the national revenue, the only fund out of which taxes can be permanently paid; and thus lays the sure foundation of public poverty and disgrace, in the destruction of individual fortunes. Like falling bodies, which are precipitated with a constantly and rapidly increasing velocity, a system of taxation acting on capital multiplies pauperism and distress in a geometrical proportion, and destroys alike the desire and the means of reproduction.

It would, however, be an error to suppose, that a tax is necessarily a tax on capital, because it is laid on capital, or a tax on income, because it is laid on income. A moderate tax laid on capital may be, and generally is, defrayed out of a saving of income; whereas an oppressive tax laid on income has in most cases to be paid from capital. But of all species of taxes, those are plainly the most injurious which necessarily fall on capital, without giving the contributors an opportunity to defray them from revenue. Such taxes, by diminishing the funds for the maintenance of labour, in so far diminish the future taxable income of the country. The legacy-duty, as we shall afterwards show, is chiefly censurable on this ground.

Most writers on finance, patronized by the governments of the different European countries, have laboured to show that taxation is never a cause of diminished production; but that, on the contrary, every new tax creates a new ability in the subject to bear it, and that every increase of the public burdens becomes the cause of a proportional increase in the industry of the people. The fallacy of this opinion, when advanced thus absolutely and without reservation, has been ably exposed by Hume in his Essay on Taxes. It is certainly true, however, as has been already stated, that the desire to preserve their fortunes unimpaired, and to improve their condition, stimulates most men to endeavour to discharge the burden of a moderate tax, by increased industry, ingenuity, and economy, without allowing it to encroach on their fortunes, or even to lessen the rate at which they may have been previously increasing them; and sometimes these efforts more than countervail the influence of the tax, and the public wealth is, consequently, augmented through its imposition. This was strikingly evinced during the progress of the late war. To the desire of rising in the world, the increase of taxation superadded the fear of being cast down to a lower station; and the two together produced results that could not have been brought about by the unassisted operation of either. But we must beware of the abuse of this principle. An increase of taxation will not stimulate to new efforts unless the contributors believe that it is in their power to defray the whole or the greater part of its amount by additional industry and economy. The effect of exorbitant taxes is not to stimulate industry, but to destroy it. No man will ever be really and perseveringly industrious, whose industry does not yield him a visible increase of comforts and enjoyments. If taxation be carried so high as to swallow up the whole, or even the greater part, of the produce of industry, above what is required to furnish mere necessaries, it must, by destroying the hope and the means of rising in the world, take away the most powerful motive to industry and frugality, and, instead of produci ng increased exertion, will produce only despair. The stimulus given by excessive taxation to industry has been not unaptly compared to the stimulus given by the lash to the labour of the slave; a stimulus which the experience of all ages and nations has proved to be as ineffective as it is inhuman, when compared to that which the expectation of improving his condition, and of enjoying the fruits of his industry without molestation, gives to the productive energies of the moderately taxed citizen of a free state.

It would be easy to illustrate the effects of oppressive taxation in destroying industry, by references to the history of most European nations.^[2. For an instructive account of the effect of heavy taxes on the commerce and industry of Holland, see the second volume of the work of M. Luzac, De la Richesse de la Hollande. ] In Spain they have been particularly fatal. The decline of that country has been commonly ascribed to the expulsion of the Jews and Moors, and to the emigrations to America. But had the policy of the Spanish government been otherwise sufficiently liberal —had industry been properly protected, and moderate and equal taxes levied—the losses occasioned by the expulsion [7:21:97]of so many of her most industrious citizens would have been gradually repaired, and the emigration to America would have acted only as a stimulus to population. But oppressive taxes have not only prevented Spain from recovering from the wounds inflicted by the bigotry of her rulers, but have gone far to extinguish the very spirit of industry. Of the taxes most instrumental in producing this effect, the alcavala is justly entitled to the pre-eminence. This was a tax originally of ten, but subsequently of fourteen per cent., charged on all commodities, whether raw or manufactured, as often as they were sold, and rated always according to their selling price. Such a monstrous impost was of itself sufficient to annihilate industry. The manufactures of Castille and the other provinces subjected to its destroying influence were irretrievably ruined. And Ustariz, Ulloa, and Campomanes, Spanish authors of the highest credit, agree in opinion with Mr Townsend, that it is to their exemption from this odious tax that the comparatively flourishing state of industry in Catalonia and Valencia is entirely to be ascribed.

Besides contending that the uniform effect of taxes is to create a new ability in the people to bear them, the government financiers have also contended that the value of the taxes is not really lost to the consumers, but that it is again restored to them through the expenditure of government and its agents! And notwithstanding the gross and almost obvious fallacy which this statement involves, it still not unfrequently forms the substance of the answers made to those who complain of the injurious influence of heavy taxes. To show its absurdity, let it be supposed that a farmer is taxed L.50, and let us endeavour to ascertain whether the expenditure of this sum by the public functionary, or individual to whom it has been paid by government, affords any compensation to the farmer for its loss. If the receiver of the tax do not lay it out on commodities produced by the farmer, it is obvious it cannot again return to him, and he can derive no advantage from its expenditure. But let us suppose, which is the most favourable hypothesis for the argument we are combating, that the tax-receiver comes to the farmer to buy his produce, and let us trace the successive steps and effect of the whole transaction. First of all, then, the farmer sold as much corn, or other produce, as was worth L.50; he next paid away these L50 to a tax-gatherer; and the person who received the L.50 from the tax-gatherer now comes to the farmer and offers them back to him, on condition of his receiving an equivalent in corn or other produce. This is the way in which the money drawn from the pockets of the public by taxation always reverts to them; and if it enrich any one, it is obvious it must do so by making him pay twice for the same sum of money! It is to no purpose to endeavour to escape from this reductio ad absurdum, by telling us that industry is always benefited by every extension of the market, and that the consumption of soldiers and sailors is advantageous, because it increases demand. To benefit industry a market must be a real, not a nominal one; it must be one in which the demanders have, by means of their own industry or resources, supplied themselves with the money or other equivalents they offer for commodities. It is absurd to suppose that either individuals or states can ever receive the smallest benefit from the demand of those whom they have been previously obliged to furnish with the means of buying. Such, however, is always the case with the demand of those who live on the produce of taxation; and to keep up useless regiments and overgrown establishments, on pretence of encouraging and stimulating industry by increasing demand, is to the full as inconsequential and irrational as if a shopkeeper were to attempt to increase his business and get rich by furnishing his customers with money to buy his goods.

The fallacy of the doctrine against which we have been contending has been forcibly illustrated by Dr Hamilton. “To argue,” says he, “that the money raised in taxes being spent among those who pay it, is, therefore, no loss to them, is no less absurd than the defence of a housebreaker, who, being convicted of carrying off a merchant’s money, should plead that he did him no injury, for the money would be returned to him in the purchase of the commodities in which he dealt”^[3. This sophism is equally well exposed in the Lettres d’un Citoyen tur lea Vingtièmes, &c. (p. 113), published in 1768. ]

It is obvious, therefore, that the services rendered by public functionaries, or by those to whom taxes are paid, form the only compensation received by the tax-contributors. And it is undoubtedly true, that when neither the number nor the salary of those functionaries is too great, their services are a sufficient return for the sums which they receive. But all that is drawn from the people by means of taxes, to be expended in maintaining unnecessary functionaries, or in over-paying them, is wholly lost to the public,—as much so as if it were thrown into the sea or the fire.

That security, protection, and good government which it is the object of taxation to procure, are highly valuable, or rather quite indispensable, cannot be disputed. But, like all other values, the smaller the sacrifice for which they may be obtained, so much the better. A diminution of taxation, and consequently of the expense of government, is an advantage to the public precisely of the same kind that a diminution of the cost of any useful or desirable commodity is to an individual. There is really no mystery whatever in the manner in which government is supported and taxation operates. Government is not a producer: its expenditure is not defrayed by its own labour, but by that of its subjects. And hence it is obvious, that the greater the expenses of government the deeper must they encroach on the income or capital of its subjects, and conversely, unless, as previously stated, they be met by increased industry or economy, or both. But this is not always to be depended on; and M. Say is therefore justified in saying, that the best system of finance is to spend little; and the best of all taxes, the least. Le meilleur de tous les plans de finance est de dépenser peu, et le meilleur de tous les impôts est le plus petit.

Various and very discordant opinions have been entertained respecting the ultimate incidence and effect of particular taxes. Locke in England, and Quesnay and his followers in France and Italy, contended that all taxes, however imposed, fell ultimately on the land. This erroneous opinion proceeded from their supposing that agriculture was the only productive species of industry; whereas it is in no respect more productive than others. The truth is, that every burden, directly or indirectly affecting the producers of any article, falls ultimately on the consumers. A tax on hats, for example, must raise the price of hats, as a tax on leather must raise the price of shoes; for if this were not the case, the profits of the hatter and shoe-maker would be reduced below the general level; and as there can be no reason why they should be satisfied with a lower rate of profit than their neighbours, they would begin to withdraw their capital from such losing businesses; and would continue to withdraw it, till, through the diminished supply of their particular commodities, their prices had been raised to their proper height, or to such a height as would yield them the average profits of stock exclusive of the tax. There are natural limits, however, to the extent to which taxes on commodities can be carried; and their effects differ according as they are laid on commodities required for [7:21:98]die consumption of the labouring class, or on those exclusively consumed by the higher classes. But before proceeding to inquire into the influence of particular taxes, we shall make a few observations on the following maxims laid down by Dr Smith with regard to all taxes, and which are drawn up with singular judgment and comprehension.

First maxim. “The subjects of every state ought to contribute towards the support of the government, as nearly as possible in proportion to their respective abilities; that is, in proportion to the. revenue which they respectively enjoy under the protection of the state. The expense of government to the individuals of a great nation is like the expense of management to the joint tenants of a great estate. In the observation or neglect of this maxim consists what is called the equality or inequality of taxation.”

Second. “The tax which each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner of payment, the quantity to be paid, ought all to be clear and plain to the contributor and to every other person. When it is otherwise, every person subject to the tax is put, more or less, in the power of the tax-gatherer, who can either aggravate the tax upon any obnoxious contributor, or extort, by the terror of such aggravation, some present or perquisite to himself. The uncertainty of taxation encourages the insolence and favours the corruption of an order of men who are naturally unpopular even where they are neither insolent nor corrupt. The certainty of what each individual ought to pay is, in taxation, of so great importance, that a very considerable degree of inequality, it appears, I believe, from the experience of all nations, is not near so great an evil as a very small degree of uncertainty.”

Third. “Every tax ought to be levied at the time and in the manner in which it is most likely to be convenient for the contributor to pay it. A tax upon the rent of land, or of houses, payable at the same term at which rents are usually paid, is levied at the time when it is most likely to be convenient for the contributor to pay, or when he is most likely to have wherewithal to pay. Taxes upon such consumable goods as are articles of luxury are all finally paid by the consumer, and generally in a manner that is very convenient for him. He buys them by little and little, as he has occasion to buy the goods; and as he is at liberty, too, either to buy or not to buy as he pleases, it must be his own fault if he ever suffers any considerable in-conveniency from such taxes.”

Fourth. “Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible, over and above what it brings into the public treasury of the state.” (Wealth of Nations, M’Culloch’s ed. 1 vol. 8vo, p. 371.)

A system of taxation may be pronounced to be good or bad, according as it approaches to or recedes from these maxims. For example, the great defect in the system of taxation in France under the old regime, consisted not so much in its magnitude, or in the oppressive manner in which it was collected, as in its inequality. Instead of all the citizens contributing to the wants of the state in proportion to their respective abilities, those who had the largest fortunes, and who consequently derived the greatest advantage from the security and protection afforded by government, were entirely relieved from the burden of direct taxation. The nobility and clergy, while they engrossed every situation of power and emolument, were, in as far as possible, exempted from taxation. And it is no •longer a question, that the disgust occasioned by this inequality of taxation, the impatience of the feudal privileges of the nobility, and the desire of equal rights, were the leading causes of those revolutions which have made so much havoc amongst the ancient institutions of the continent.

The system of taxation generally established in eastern countries has the defect of not corresponding with the second maxim laid down by Smith. The amount of the contribution is fluctuating and arbitrary, not fixed and certain. In despotic countries, all the agents of government are despots in their own peculiar sphere; and though the sum demanded by the sultan should be defined and ascertained, there are no limits to the extortion and rapacity of his agents. An individual who has paid the tax imposed by the sultan has no guarantee against being called upon to pay three or four times as much to the pacha of the province. The security of property is thus completely subverted; and the arbitrary nature of the public burdens is entirely destructive of that spirit of industry which might have supported and extended itself under a far greater weight of equable and well-defined taxes.^[4. For a good account of the effects of the arbitrary nature of eastern taxation, see Volney, Voyage en Syrie, tom. ii. cap. xxriii. xxxvii. ]

The establishment of the warehousing system, or the granting of liberty to the merchant, on payment of a moderate rent, to deposit his imported goods in public warehouses, under the king’s lock and his own, without being obliged to pay the duties until he find it convenient to withdraw them, has made a large branch of our taxation correspond very closely with the third maxim laid down by Smith; that is, it has made a large class of duties be levied at the time and in the manner most convenient for the contributors. Previously to the act of the 43d of George III., establishing the warehousing system, the customs-duties on imported articles, which amount to a very large proportion of the public revenue, had either to be paid at the moment when the goods were imported, or a bond, with sufficient security, for their future payment, had to be given to the revenue officers. The hardship and inconvenience of such a system are obvious. Sureties were often difficult to be obtained, and the merchant, in order to raise funds to pay the duties, was frequently reduced to the ruinous necessity of selling his goods immediately on their arrival, when perhaps the market was already glutted. Neither was this the only injury entailed on the country by such a system; for the duties being payable at once, and not by degrees, as the goods were sold for consumption, their price was raised by the amount of the profit accruing on the capital advanced to pay the duties. Competition, too, was diminished in consequence of the greater command of funds required to carry on trade under such disadvantages; and a few rich individuals were thus, in a great measure, enabled to monopolize the business of importing commodities charged with heavy duties. The system had, besides, an obvious tendency to discourage the carrying trade of the country, and to endanger the security of the revenue. For the necessity of paying import duties even on those commodities which were destined for re-exportation, deprived us of all chance of ever becoming considerable as an entrepôt; by preventing the importation of most foreign commodities, except those colonial products of which we had a monopoly, that were not likely to be speedily required for home consumption; at the same time that the difficulties attending the granting of a really equivalent drawback to the exporters of such as had paid the duty, opened a door for the commission of every species of fraud.

Sir Robert Walpole appears to have had a very clear conception of the injurious consequences of this system; and it was the object of tire famous Excise Scheme, proposed by him in 1733, to allow the importers of tobacco and wine to deposit them in public warehouses, and to relieve them from the necessity of paying the duties chargeable on these articles till they withdrew them for home [7:21:99]consumption. The celebrity of his scheme, and the misconceptions that have been so generally entertained respecting it, incline us to think that we shall gratify our readers by laying before them the following passages from the speech made by this statesman when he submitted his plan to the consideration of the House of Commons.

“The duties now payable upon tobacco, on importation,” said Sir Robert, “amount to sixpence and one third part of a penny per pound weight; all which must be paid down in ready money upon importation, with the allowance of ten per cent. upon prompt payment; or otherwise there must be bonds given, with sufficient sureties, for the payment thereof; which is often a great loss to the public, and is always a great inconvenience to the merchant importer. Whereas, by what I am to propose, the whole duties to be paid for the future will amount to no more than fourpence and three farthings per pound weight; and this duty not to be paid till the tobacco comes to be sold for home consumption. So that, if the merchant exports his tobacco, he will be quite free from all payment of duty, or giving bond therefor, or finding out proper sureties for joining in such bond: he will have nothing to do but unload his tobacco on board a ship for exportation, without being at the trouble to attend for having his bonds cancelled, or for taking out debentures for the drawbacks; all which, I conceive, must be a great ease to the fair trader; and to every such trader the preventing of frauds must be a great advantage, because it will put all the tobacco traders in Britain upon the same footing; which is but just and equal, and what ought certainly to be accomplished, if it be possible.

“Now, in order to make this ease effectual to the fair trader, and to contribute to his advantage by preventing as much as possible any frauds in time to come, I propose, as I have said, to join the laws of excise to those of the customs, and to leave the one penny, or rather three farthings, per pound, called the farther subsidy, to be still charged at the custom-house upon the importation of any tobacco; which three farthings shall be payable to his majesty’s civil list, as heretofore. And I propose, that all tobacco, for the future, after being weighed at the custom-house, and charged with the said three farthings per pound, shall be lodged in the warehouse or warehouses, to be appointed by the commissioners of the excise for that purpose, of which warehouse the merchant importer shall have one lock and key, and the warehouse-keeper to be appointed by the said commissioners shall have another, in order that the tobacco may lie safe in that warehouse till the merchant finds a market for it, either for exportation or home-consumption. And if his market be for exportation, he may apply to his warehouse-keeper, and take out as much for that purpose as he has occasion for, which, when weighed at the custom-house, shall be discharged of the three farthings per pound with which it was charged upon importation; so that the merchant may then export it without any farther trouble. But if his market be for home-consumption, that he shall then pay the three farthings charged upon it at the custom-house upon importation; and that then, upon calling his warehouse-keeper, he may deliver it to the buyer, on paying an inland duty of fourpence per pound weight to the proper officer appointed to receive the same.”

Walpole concluded his speech by saying, “I look upon this as a most innocent scheme; it can be hurtful to none but smugglers and unfair traders. I am certain it will be of great benefit to the revenue, and will tend to make London a free port, and , by consequence, the market of the world. If I had thought otherwise of it, I should never have ventured to propose it in this place.”^[5. Tindal’s Continuation on Rapin, viii. p. 154, ed. 1769; Coxe’s Sir R. Walpole, vol. i. p. 372, 4to ed. Had the resolutions with respect to tobacco been carried, those regarding wine, which were to have been exactly similar, would have been proposed. ]

Nothing can be more clear and explicit than this statement; and no doubt can now remain in the mind of any one, that the adoption of the scheme would have been of the greatest advantage to the commerce and revenue of the country. But such and so powerful was the delusion generated in the public mind with respect to it, that its proposal had nearly caused a rebellion. Most merchants had availed themselves of the facilities which the existing system afforded of defrauding the revenue; and they dexterously endeavoured to thwart the success of a scheme which would have given a serious check to such practices, by making the public believe that it would be fatal to the commercial prosperity of the country. The efforts of the merchants were powerfully assisted by the spirit of party, which then ran very high. The opponents of the ministry, anxious for an opportunity to prejudice them in the public estimation, contended that the scheme was only the first step towards the introduction of such a universal system of excise as would inevitably be subversive alike of the comfort and liberty of the subject! In consequence of these artful misrepresentations, the most violent clamours were everywhere excited against the scheme. On one occasion the minister narrowly escaped falling a sacrifice to the fury of the mob, which beset all the avenues to the House of Commons; and after many violent and lengthened debates, the scheme was ultimately abandoned.

The disadvantages of the old plan, and the benefits to be derived from the establishment of the warehousing system, were very clearly stated by Dean Tucker in his Essay on the Comparative Advantages and Disadvantages of Great Britain and France with respect to Trade; published in 1750. But so powerful was the impression made by the violent opposition to Sir Robert Walpole’s scheme, and such is the force of prejudice, that it was not until 1803 that this obvious and signal improvement—the greatest, perhaps, that has been made in the financial and commercial system of the country—was adopted.

The comparative facility and cheapness with which taxes may be collected should be particularly attended to in their imposition. Every tax should, as Dr Smith has stated in his fourth maxim, be contrived so as to take out, and keep out, of the pockets of the people as little as possible above what it puts into the public treasury. The principle of this maxim is obvious. The nett produce of taxation, or the sum which it yields after the expenses of collection are deducted, is alone applicable to national purposes; and taxes which it costs a great deal to collect impose a heavy burden on the people for the sake of a small advantage to government. It is stated by Sully in his Memoirs, that the expense of collecting a nett revenue of thirty millions of livres in France in 1598 cost the enormous sum of 120 millions; or, in other words, that of a sum of 150 millions taken from the people by means of taxation, only thirty millions found their way into the coffers of the treasury! Under the administration of M. Necker, a revenue of about 557 millions of livres was collected at an expense of fifty-eight millions; being about 10 2 / 3 per cent

The expense of collecting the public revenue of Great Britain, for the year ended the 5th January 1840, amounted to L.6. 0s. 5¾d. per cent. on the gross produce; while in Ireland its expense for the same year amounted to L.11. 18s. 6¼d. per cent. or to nearly twice as much as in Britain. A good deal of this difference of expense must be ascribed to the different situation of the two countries; but a good deal is also owing to the more defective system of taxation established in Ireland, and to the greater corruption of the officers. The difference in the cost of collecting the post-office revenue of the two countries is the greatest. In [7:21:100]Britain the gross produce for the year ended 5th January 1840 was collected at an expense of L.27. 17s. 5½d. per cent; while in Ireland it cost L.42. 19s. 5½d. per cent.! . Formerly, however, the cost of collecting the revenue in Ireland was proportionally much greater than at present; the adoption of the plans and suggestions of the commissioners appointed to inquire into the state of Irish revenue having been productive of a material saving in this department.

Taxes may be collected by officers employed by government for that purpose; or government may let them in firm to individuals for a rent certain, giving to the lessees or their servants power to collect them. The question, which of these modes of collection should be adopted, depends on a variety of circumstances, and does not admit of any general solution. Where a tax is well defined, and may be collected without requiring any very minute inspection of the private concerns of individuals, it may generally be farmed with advantage. In such a case the proceedings of the farmers could not excite the prejudices of the contributors; and the greater skill and economy with which businesses are usually conducted by individuals would most likely enable the farmers to pay, exclusive of their profits, a larger sum to government on account of the tax, than it would have much chance of receiving from its own agents. But if a tax were not well defined, or if it required a close examination of the affairs of individuals to assess it fairly, there cannot, we think, be a doubt that it should be collected by the servants of government. It is indeed probable that such a tax might be more productive were it farmed; but this, though an important consideration, is not the only one to be attended to. All taxes which occasion any investigation into the private concerns of individuals, are necessarily unpopular; and it is obvious that this unpopularity will be immeasurably greater when these investigations are conducted by those who have a personal interest in prosecuting them with the greatest strictness, than when they are conducted by the agents of government—that is, by persons who in most cases derive none, and in all cases only a very slender benefit from the increased productiveness of the tax. The mass of the people would most assuredly ascribe much of the hardship of such taxes to the vigilance and keenness of the farmers; and would be disposed to believe that a considerable portion of their produce went into their pockets, and that they were not only assessed to defray the charges of the state, but to add to the fortunes of a class who are universally objects of popular indignation. We admit that these suspicions and complaints are in most cases destitute of foundation. The farmers can only enforce payment of a tax according to the provisions in the law imposing it; and if its pressure be either unequal or severe, or the mode of its collection vexatious and troublesome, the fault lies with those who imposed it, and not with the farmers. But, however groundless, the prejudice against the farmers of the revenue is one which will always exist, and should be respected. Perhaps we overrate its influence; but we have very little doubt that, had an income-tax of five or six per cent., let in farm, been established instead of the late income-tax of ten per cent., it would have been generally considered as the more oppressive and vexatious of the two. Although, therefore, we cannot concur with Dr Smith in his opinion that all taxes should be collected by the officers of government (p. 409), still less can we concur with Bentham, who has endeavoured to prove that farming is in every case the preferable mode of collection. ( Theorie des Peines et des Recompenses, tome ii. p. 203.) Taxes on stamped paper, houses, windows, horses, carriages, &c., and perhaps also the customs-duties, might be advantageously collected by letting them to farmers; but any attempt to farm taxes on income, excise-duties, or taxes which require an examination of and interference with private affairs, would excite the most violent clamour and irritation, and could not be otherwise than most pernicious.

The corvee system, or the compelling of individuals to execute public works by requisitions of labour, is one of the worst species of taxation. Those who get no pay for their labour, and are made to work against their will, waste their time and industry; and there is, besides, a very great loss incurred by the interruption of the regular pursuits of the labourers. When Turgot entered on his administration, he sent a circular letter to the road-surveyors and engineers of the different provinces of France, ordering them to transmit estimates, framed on the most liberal scale, of the sums of money for which the usual repairs might be made on the old roads, and the ordinary number of new ones constructed. The aggregate of the different estimates showed that a money contribution of about ten millions of livres a year would suffice for the repair and construction of all the roads in the kingdom; whereas Turgot showed, that the execution of these repairs and constructions by contributions of forced labour, or corvées, cost not less than forty millions, or four times as much as the other! (Say, Traite d’Economic Politique, tom. ii. p. 345.)

The method of repairing roads by contributions of labour instead of money was at one time general throughout Europe, and is still acted on in many countries. In Scotland the agricultural population of the country were compelled, by an act passed in 1669, to work six days each year at the public roads. This contribution was denominated statute-labour, and was commuted, in the early part of the reign of George III. for a tax on land, rated according to its valuation in the cess-books. This commutation has been productive of the greatest advantage. Previously to its taking place, our roads were, perhaps, the very worst, and they have since become among the very best in Europe.

PART II.—DIRECT TAXES.

It is impossible, for the reasons stated in the previous section, to regard such taxes as really fall on capital as a permanent source of public income. Capital consists of produce saved from immediate consumption, and employed partly to maintain those who are engaged in the great work of production, and partly to facilitate their labour. Its amount regulates that of the productive industry of the country. And such being the case, it is plain, that whatever has a tendency to diminish capital, or to convert it into revenue, must, by diminishing the means of employing and facilitating labour, and consequently the annual produce of the country, be a most fruitful source of pauperism and misery. This, however, would be the precise effect of taxes on capital; and it is for this reason that they should always be regarded in the light of an extraordinary resource, and should never be imposed except in cases of very urgent necessity. The misapplication and destruction of the means of production which they infallibly occasion, would not only defeat every attempt to render them permanent, but would, by impoverishing and exhausting the country, render all other taxes comparatively unproductive.

It is not from capital, therefore, but from revenue, that all permanent taxes should be derived. And as the revenue of all individuals supported by taxation must be drawn from rent, profit, or wages, it is plain that all taxes which do not fall on capital, must, however imposed, ultimately fall on one or other of these three sources. Without further preface, therefore, we shall proceed to trace the incidence and effect of such taxes as are laid directly on rent, profit, and wages; and when we have ascertained the way in which they operate, it will be comparatively easy to investigate the effect of taxes meant to fall equally on all the various sources of income.
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sect. i.—taxes ον rent. ^[6. Before perusing this section, the reader will do well to glance at the chapter on rent, in the article Political Economy in this work. ] Taxes on the Rent of Land.— Dr Smith held that taxes on the rent of land, taking the term in its popular and broadest sense, fell wholly on the landlords. No doubt, however, this is an error. The sum paid to the landlords for rent properly so called, that is, for the use of the natural powers of the soil, might be entirely swept away by a tax, without their having it in their power to throw any portion of the burden on any one else; but in so far as the rent of land consists of the interest of capital expended on improvements or buildings, it could not be taken from the landlord by a tax on rent.

1. Practically it is altogether impossible to separate the gross rent of land in an old-settled and highly improved country into its component parts, or to distinguish between the sum paid for the use of the soil, and that paid on account of the capital expended upon it. But supposing that this separation is effected, then, as the former portion, or that paid for the use of the natural and inherent powers of the soil, forms a surplus over and above the cost of production, it might, it is clear, be entirely carried off by a tax, without affecting the interests of any class, other than landlords. The heaviest tax on it would not raise the price of raw produce; for nothing can affect its price which does not affect the cost of its production. Now, the real rent of land is extrinsic to, and independent on, that cost, and cannot indeed have any existence until the cultivators have been fully indemnified for the expense incurred in bringing produce to market, and have obtained the common and ordinary rate of profit on the capital vested in buildings, fences, &c., and in seed, labour, and implements. The prices of all sorts of farm produce would consequently continue unaffected, though a tax were imposed absorbing all the real rent of land, or the sum paid for the soil only.

2. It would not, however, be possible for government, even if it were disposed to make the attempt, to abstract, by means of direct taxes, the gross rent of the landlords, or the total sum paid them, not only for the use of the inherent powers of the soil, but for buildings, &c. In whatever degree the rent paid for land may consist of interest of capital laid out upon it, in that degree would a tax upon such rent operate to raise the price of raw produce, and would, in consequence, fall ultimately on the consumer. In so far as the gross rental of landlords consists of payments made them for the use of the natural and inherent powers of the soil, it results not from their being producers, but from their being owners of the land; but it is otherwise with the portion of the gross rental paid them on account of improvements. This results from their being producers, or from their having capital vested in agricultural meliorations; and it is plain that a tax affecting the profits of this capital must necessarily affect the cost of raw produce. Suppose, for example, that the gross rental of a farm is L.500 a year, a half, or L.250, thereof, being really paid as interest of capital laid out on its improvement. If, in such a case, a tax of ten per cent. were laid on rent, only a half, or L.25, of this tax would be permanently paid by the landlord. In the first instance, no doubt, the whole L.50 would fall upon him; but L.25 of this payment would, it is plain, be a deduction from the profits of the capital laid out on improvements, and not from rent properly so called. And the landlords being thus placed in a comparatively unfavourable situation, no more capital would be expended upon the soil, until the price of corn, and other raw produce, had been raised by the gradual diminution of its quantity, or the increase of demand, so as to place them in the same situation as other producers; that is, until they obtained the common and ordinary rate of profit from the capital laid out on improvements.

It appears, therefore, that although it may be supposed possible to draw into the coffers of the treasury, by an exclusive tax, all that portion of the rent of land which is paid for the use of the natural and inherent powers of the soil, the other portion, which is paid on account of the improvements made on it, would not be permanently affected by an exclusive tax; and could, speaking generally, only be taxed to the same extent that the profits of capital employed in other departments are taxed.

In a practical point of view, taxes on the rent of land are among the most unjust and impolitic that can be imagined. It is, as already stated, quite impossible to separate rent into its elements, or to say how much is paid for the soil and how much for improvements. No two agriculturists ever arrive, in any given case of this kind, unless by accident, at the same conclusion; and the best judges affirm that, generally speaking, the distinction is utterly impracticable. When, therefore, a tax is laid on rent, it is necessarily proportioned to its gross amount, or to the total sum paid to the landlords, without regard to the sources whence it is derived. But any euch tax has always been, and will unavoidably continue to be, a formidable barrier to improvements; for the return paid to a landlord for capital expended on the soil being included in the rent, a tax on it discourages or prevents all fresh outlays of capital, lest they should occasion a corresponding increase of the tax. The injustice of this impost is not less obvious. Two landlords are each in the receipt of an equal sum, say L.1000 a year; the estate of one consisting of naturally fine soil, on which but little capital has been laid out; and that of the other of very inferior land, on which a great deal of capital has been expended. A tax on the former merely abstracts a portion of what is principally the result of the bounty of Providence; whereas a tax on the latter abstracts a portion of what has been mainly produced by the labour and industry of man. Hence the obvious injustice and oppressiveness of taxes on rent. We doubt, indeed, whether it be possible to suggest any tax more decidedly at variance with every sound principle, or more adverse to the progress of improvement.

The circumstance of rent unavoidably rising in the progress of society, inclines many to think that it would be good policy for the governments of countries like the United States, which possess large tracts of fertile and unappropriated land, to retain the property of such land, and to let it by public auction, in such portions, and for such a number of years, as might be deemed advisable. This, however, is a very questionable position. The probability seems to be, that it would hinder the undertaking of many of those expensive improvements in drainage, and in the construction of houses, roads, and bridges, the formation of plantations, &c., necessary to the full development of the productive energies of the soil, that are entered into by individuals who have the absolute property of the land, and can bequeath it to their successors. These consequences might no doubt be, in part at least, obviated by increasing the length of the leases, so as to encourage a liberal outlay of capital. On the whole, however, it would seem that a right of private property in land is the best stimulus to its improvement. And it must further be observed, that where such right is established, the landlords prescribe and enforce such conditions for the management of the land, as, speaking generally, are effectual to hinder it from being worn out and impoverished previously to the expiration of leases. But it is easy to see that no such power of regulation and superintendence could be safely intrusted to government officers; and we have little doubt that, through the deterioration of the land, originating in the want of the vigilant superintendence of the landlords, a country [7:21:102]would lose incomparably more by adopting the project than it would gain. It is true, could these drawbacks be got rid of, its adoption would be productive of sundry advantages. And it has been said, that as population increased, and as the expenses of government were necessarily augmented, an increasing revenue would, under this plan, be provided to meet them; a revenue, too, we are desired to recollect, that is raised without hardship to any individual whatever, and which, even though the government should not take it, would notwithstanding exist, and have to be paid by the consumers of raw produce. “Under such a system the owners of capital would enjoy its profits; the class of labourers would enjoy their wages, without any deduction whatsoever; and every man would employ his capital in the way which was really most advantageous, without receiving any inducement, by the mischievous operation of a tax, to remove it from a channel in which it was more, to one in which it would be less, productive to the nation.” (Mill’s Elements of Political Economy, p. 199.)

But we are well convinced, for the reasons previously stated, that these supposed advantages are not destined ever to be realized; and that the amount of wealth or of produce to be divided among its inhabitants, in a country with a right of private property in land, will always very much exceed its amount did no such right exist. At all events, it is clear that it would be most unjust, where a right of private property in land is established, to attempt to impose any exclusive taxes on the landlords. All classes should be made to contribute, in proportion to their means, to the wants of the state; but when once these means have been properly valued, the sources whence they are derived are quite immaterial.

The greater part of the revenues of the principal monarchies of Asia seems in all ages to have been derived from the soil. “The land has been held by the immediate cultivators, generally in small portions, with a perpetual and transferable title; but under an obligation of paying annually the government demand, which might be increased at the pleasure of the sovereign, and seldom amounted to less than a full rent.” (Mill’s Elements of Political Economy, p. 199.)^[7. For an account of the taxation of eastern countries, see the same author’s History of India, vol. i. chap. Taxes. Some curious and valuable details, with respect to the land-taxes of the ancient Egyptians, may be found in the first volume, liv. i. sect. 4, of the excellent work of the President de Goguet, Sur l’Origine de. Loix, &c. ] l

The scutages on knights’ fees, the assessment of hydage on other lands, and the subsidies chargeable on the proprietors of estates, so often referred to in the history of England, were, to all intents and purposes, land-taxes. (Blackstone, i. p. 312.) But the existing land-tax has supplanted all those more ancient assessments. This tax was first imposed in 1693, a new valuation of all the lands in the kingdom having been made in the previous year. According to this valuation, it was found that a tax of one shilling on the pound of the ascertained rental, afforded an annual clear revenue of L.500,000. No change has ever been made in the valuation of 1692. The tax, which was at first an annual one, has been generally as high as four shillings a pound of the valued rent. In 1798 it was made perpetual at that rate, leave being, at the same time, given to the proprietors to redeem it.

The land-tax was very unequal at its first imposition; for such proprietors as were friendly to the revolutionary establishment generally returned their estates at a much higher value than those attached to the Stewarts. The different degrees of improvement that have since taken place in the various districts of the country, have in some instances tended to correct the inequalities in the original imposition of the land-tax, and in others to increase them.

Taxes on the Rent of Houses.— The principal part of the rent of houses generally consists of the profits of the capital laid out in their construction, or, as it is more commonly termed, of building rent, a comparatively small part only being ground rent, or rent payable for the soil on which they are erected. It is evident, therefore, from the principles already established, that, if the supply of houses could be as easily diminished and increased as the supply of raw produce, a tax on their rents would fall entirely on the occupiers and ground landlords, in the proportion that the profits of the capital laid out on them bore to the rent of the land on which they stood. But as the supply of houses is not susceptible of speedy diminution, the builders would have no means of immediately raising rents when a tax was laid on them; and unless the capital of the country, and consequently the population and demand for houses, were rapidly increasing, a considerable number of years would necessarily elapse before they would be able to relieve themselves of the tax. Houses, however, though slowly, are yet certainly perishable; and as no more of them would be built after they had been taxed, until the increasing demand had raised their rents so as to indemnify the builders for the tax, and to elevate their profits to the common level, there can be no question that, in the end, the tax would be thrown wholly on the occupiers and ground landlords in the proportions already mentioned.

Sect. IL— Taxes on Profits.

A tax proportioned to the nett profits realized by those engaged in all departments of industry, provided it could I be imposed, would fall wholly on profits.

Such a tax would affect all capitalists to precisely the same extent. When five or ten per cent. was laid on the profits of the farmer or manufacturer, an equal five or ten per cent. would be laid on the profits of the merchant, the ship-owner, and all the other employers of capital. It is evident no individual could hope to evade the burden of such a tax by changing his business; and it could not, therefore, occasion any transfer of capital from one employment to another; neither would it occasion any variation in the supply and demand of commodities, nor in their money price. For, as the tax does not fall on capital, but on profits, the means of producing would not be impaired by its imposition; the means of purchasing possessed by those who live on profits, previously to the imposition of the tax, would indeed be diminished; but as the means of purchasing possessed by the government and its agents who receive the tax, would be proportionally augmented, the aggregate demand of the society would continue the same; and hence, as the tax could neither lessen the quantity of capital in the country, nor the power to purchase its produce, it is obvious it could not, supposing the value of money to continue invariable, occasion any variation in the money prices of commodities.

The immediate effect of an equal and universal tax on profits would, therefore, be to sink them in the same proportion. And as the power to accumulate capital, and consequently to feed and employ an additional number of people, must ever be in direct proportion to the rate of profit, it follows that the tendency, and, when they are carried to such a height as to prevent their being balanced by increased exertion and economy, the ultimate and necessary effect, of such taxes, is to check the accumulation of capital and the progress of population.

But it is material to bear in mind, that these conclusions are true only on the supposition that the tax is assessed so as to affect all profits to precisely the same extent. Practically, and in fact, however, this is an impossible condition.
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There are no means whatever by which to measure the rate of profit in different businesses. Generally, indeed, it can only be guessed at even by those engaged in carrying them on; and were an attempt made to tax profits, the great majority of individuals would underrate their amount, and, in the far greater number of businesses, it would be quite impossible for government officers to come to any thing like an accurate conclusion as to their magnitude. It would, in consequence, be necessary to adopt some general rules for assessing the tax; and the vice of these is, that, being bottomed on real or rather supposed averages, they invariably make those engaged in unsuccessful speculations pay a great deal too much, while those engaged in pecurly successful speculations pay only a comparatively small portion of what they would have to pay were the tax fairly assessed. In truth and reality, profits never have been and never can be taxed in proportion to their amount; and though it be important to know how a tax on profits would operate were it equally imposed, it must be kept in mind that this is altogether impracticable, and that the supposition is made merely to illustrate a principle.

A tax laid only on the profits of a particular business would have a different effect: it would raise prices, and would not, therefore, fall on the capitalists, except in as far as they were themselves consumers of their own produce. Suppose, for example, that a tax of ten per cent. is laid exclusively on the profits of the shoemaker. The slightest consideration will show that such tax must make an equivalent addition to the price of shoes; for, if it did not, the shoemakers would gain less profit than was gained by those engaged in other businesses, and they would, in consequence, gradually withdraw from their employment; nor can there be a question that they would continue to leave it, until, through the diminution in the supply of shoes, their price had reached such a height as would yield the common and average rate of profits, exclusive of the tax. For the same reason, an exclusive tax on the profits of the hatter, the clothier, the farmer, &c. would make a proportional addition to the price of hats, cloth, agricultural produce, &c. In these cases the capitalists have the power to raise prices, and consequently to throw the burden of the tax on the consumers; because they may withdraw from the businesses in which profits are taxed, and engage in those in which they are not taxed. But when the profits arising from the capital employed in every different business are equally taxed, the capitalists are deprived of this resource; and have no means either of raising prices or of evading the tax.

It is easy to see, from the principles already established, that an equal tax on the profits of agricultural and other capital could not occasion any diminution of rent. When farmers are taxed equally with all other producers, there is obviously no motive to make them withdraw capital from the land, and no variation will take place in the price of com; nor, as rent consists in the excess of the produce obtained by the capital first applied to the land over that which is obtained by the capital last applied, will it be affected by such a tax. But if the tax, instead of being general and equal, were laid exclusively on the profits of the farmer, it would cause, provided foreign corn were excluded, an increase of rent. No rent, as has been seen in the preceding section, ever enters into the cost of producing that portion of the required supply of raw produce raised by the agency of the capital last laid out on the land. It is plainly impossible, therefore, that its raisers could indemnify themselves for any burdens laid on them by making an equivalent deduction from rent. And hence, when a tax is laid exclusively on the profits of agricultural capita), the price of raw produce must sustain in the end a corresponding rise; for in the event of its not rising, the producers of that portion which pays no rent would abandon their business, and the necessary supplies would not be obtained. Inasmuch, however, as the rise of price which is required to remunerate those who raise corn that pays no rent, after a tax is imposed on profits, must be universal, it must raise rent. Thus, on the supposition that five equal capitals applied to soils of various degrees of fertility, respectively yield 100, 90, 80, 70, and 60 quarters, their com rents would be 40, 30, 20, and 10 quarters; and if the price required to remunerate the cultivators of the fifth and worst quality of land, which pays no rent, were L.2 a quarter, the money rent of the first quality would be L.80, of the second L.60, of the third L.40, and so on. Suppose, now, that an exclusive tax is laid on the profits of agricultural capital, and that, to remunerate the cultivators of the worst land, the price rises from L.2 to L.2. 10s. a quarter, it is plain the rent of the first quality would be raised to L.100, the second to L.75, the third to L.50, and so on; being an increase of L.20 on the rent of the first, of L.15 on the rent of the second, of L.10 on the third, &c.

This is a principle of considerable importance. “That the profits of the farmer,” says Mr Ricardo, “only should be taxed, and not the profits of any other capitalist, would be highly beneficial to the landlords. It would, in fact, be a tax on the consumers of raw produce, partly for the benefit of the state, and partly for the benefit of the landlords.” (Principles of Political Economy, 3d edit. p. 241.)

Mr Ricardo should, however, have added, that this is true only in the event of foreign corn being excluded, or admitted under a duty exceeding the amount of the tax on the profits of the farmers. If foreign corn be freely admitted, or if it be burdened with a less amount of duty than is laid on the British farmers, it follows, seeing that the market is in part supplied by parties not subject to the tax, or to any equivalent impost, that prices will not rise in proportion to its amount. Under these circumstances, the occupiers of the poorer lands will inevitably be driven from the business, and rents will, in consequence, be proportionally reduced. And hence, in the event of any peculiar tax being imposed on the land, it is necessary, if we would do justice to all parties, that an equivalent duty should be laid on the importation of foreign agricultural produce.

The taille, such as it subsisted in France at the epoch of the revolution, was intended to be a tax on the profits of the farmer. Instead, however, of attempting to estimate these profits by the amount of his rent, or by endeavouring to ascertain the value of the produce remaining in his possession after his rent and other outlays had been deducted, they were commonly estimated by the amount of the capital employed in cultivation. In consequence of resorting to this criterion for estimating profits, the tax tempted the farmer to employ the smallest possible quantity of capital, and deterred him from making any considerable or expensive improvement. The taille was also injurious in another respect; for, as it did not affect nobles who farmed their own lands, but fell exclusively on those who rented lands of another, or who possessed lands held by a base tenure, it was considered as a degrading tax, and as a mark of the ignoble, or rather servile, condition of those by whom it was paid. All who made any thing by farming were thus rendered anxious to withdraw from so degraded a business; while rich merchants and capitalists were prevented from becoming tenants. Not only, therefore, did the taille hinder the greater part of the capital generated on the land from being laid out on it, but it turned from it all the capital that had been accumulated in other employments. It is very difficult to suppose that any tax could have been devised better calculated to retain agriculture in a rude and infant state, and to extinguish all emulation and enterprise among farmers; and considering the long period to which France was subjected to this tax, our wonder is, not that her agriculture was in a very backward and depressed condition[7:21:104] at the Revolution, but that it was so far advanced as it really was.^[8. For a farther account of the taille, the reader is referred to Forbonnais, Recherches sur le. finances de France, tome i. p. 107; Wealth of Nations, p. 385; and to Storch, Cours d’Economic Politique (ed. de Say), tome in. p. 191. ]

The present French land-tax— contribution foncière— equally affects all lands, however occupied. It amounts, according to Garnier, to about an eighth part of the nett produce of the land—that is, of its produce, exclusive of the expenses of cultivation, but inclusive of rent. Garnier says that the tax is very fairly assessed, and that it is very moderate compared with the various charges with which landed property is burdened in most other countries. It is certainly a very great improvement on the old system; but its injurious influence is still dwelt upon by writers on the agriculture of France. (Richesse des Nations, par Garnier, tome vi. p. 404.)

Sect. III.— Taxes on Wages.

The common and ordinary effect of direct taxes on wages, or on the commodities necessary for the subsistence of the labourer, is to cause a proportional increase of wages and fall of profits.

In every discussion respecting the effect of taxes on wages, or on the necessaries consumed by the labourer, it is of the greatest importance to distinguish between the natural or necessary rate of wages, or the rate required to enable the labourers to subsist and continue their race, and the market rate, or the rate paid them at any particular period.

The natural or necessary price of labour, like that of every thing else which may be indefinitely increased or diminished, is determined by the cost of its production. The capacity of the labourer to support himself, and to rear as many children as may be required to keep up the supply of labourers, does not, it is plain, depend on the quantity of money he receives as wages, but on the quantity of food, necessaries, and conveniences essential to his support, for which that money will exchange. The natural rate of wages must, therefore, depend on the cost of producing the food, and other necessaries, required for the maintenance of the labourer. A rise in the market rate of wages does not always coincide with a rise in the price of necessaries; but they can seldom be very far separated. However high the price of necessaries may rise, the labourers, it is clear, must always receive such a quantity as is sufficient to enable them to support themselves and to continue their race. If wages fell below this necessary level, the labourers would be left destitute; there would, in consequence, be a rapid diminution of their numbers, which would necessarily raise wages: and if, on the other hand, wages were to rise considerably above this necessary level, a proportional stimulus would be given to the principle of population, and the increase of labourers would, in the long run, lower wages.

The opinion maintained by those who contend that the rate of wages does not depend on the cost of the articles consumed by the labourers, but on the demand for their exertions compared with their numbers, has obviously originated in their confounding the principles which govern the market price of labour, at a particular period, with those which govern its natural or necessary price. It is undoubtedly true that the market price of labour at any given period depends on the state of the supply as compared with the demand; but it is easy to see that the supply cannot be permanently brought to market unless the rate of wages be such as will suffice to maintain and bring up labourers— that is, if we may so speak, unless the cost of their production be paid. From whatever point of the political compass we may set out, this is the principle to which we must always come at last. In order to illustrate the principle, let it be supposed that, owing to a scarcity, the price of the quartern loaf rises to five shillings: it is plain, inasmuch as the same number of labourers would be seeking for employment after the rise as before, and as there is no reason why a scarcity should increase the demand for labour, that wages would not be advanced; the labourers would, in consequence, be forced to economise, and the rise of price would thus have the effect to lessen consumption, and to distribute the pressure equally throughout the year. But suppose that the rise, instead of being occasioned by a deficient crop, has been occasioned by an increased difficulty of production, and that it will be permanent, the question is, will wages continue at their former rate, or will they rise? In this case the probability is that wages will rise: for the comforts of all classes of labourers would be greatly impaired by the rise of prices; and those who, previously to its taking place, had only wherewith to subsist, would be reduced to a state of extreme destitution, or rather, we should say, of absolute famine. Under such circumstances, an increase of mortality could hardly fail to take place; while the greater difficulty of providing subsistence would interpose a powerful check to the formation of matrimonial connections and the increase of population. By these means, therefore, the amount of the population, or the ratio of its increase, or both, would in all likelihood be diminished; and this diminution would continue until the smaller supply of labourers in the market had enabled them to raise wages to their natural rate; that is, as Dr Smith has defined it, to such a rate as would enable them to obtain “not only the commodities which are indispensably necessary for the support of life, but whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without."

If a given specific quantity of certain articles were necessary to enable the labourers to subsist, it would directly follow that the rate of wages could not be reduced for any considerable period below what would procure these articles. But there is no such absolute standard of natural wages. Their amount depends essentially on custom and habit. The articles considered as necessaries are perpetually changing. The labourers of Hindustan principally subsist on rice, those of Ireland on potatoes, arid those of England on bread and beef. In one country it is discreditable for the lowest class of labourers to be destitute of comfortable clothing, and of shoes and stockings, while in others shoes and stockings are looked upon as luxuries to be used only by the rich. In many provinces of France and Spain a certain allowance of wine is considered indispensable; and in England the labouring class entertain nearly the same opinion with respect to beer and porter. Nor have the habits of the people, and the standard by which the natural rate of wages has been regulated at different periods in the same countries, been less fluctuating and various. The articles which custom and habit have rendered necessary for the comfortable subsistence of the English and Scotish labourers of the present day, are as widely different from those which were judged necessaries by their ancestors in the reigns of Elizabeth, James I., and Charles I., as they are from those which form the ordinary subsistence of the labourers of France and Spain. The standard of natural wages has been raised, and the poor have been taught to form much more elevated notions respecting the quantity and the species of the articles which it would be discreditable for them to be without.

The natural rate of wages is not, therefore, a fixed and unvarying quantity; and though it be strictly true that the market rate of wages can never, when reference is made to periods of considerable duration, be sunk below its contemporary natural rate, it is no less true that the natural rate [7:21:105] has a tendency to rise when the market rate rises, and to fall when it falls. The reason is, that the supply of labour in the market can neither be speedily increased when wages rise, nor speedily diminished when they fall; and it is on this circumstance that the powerful influence which fluctuations in the market rate of wages have over the condition of the labouring classes principally depends. If the supply of labour were suddenly increased when wages rise, that rise would be of little or no advantage to the existing labourers. It would increase their number, but it would not enable them to mount in the scale of society, or to obtain a greater command of the necessaries and conveniences of life. And, on the other hand, if the supply of labour were suddenly diminished when wages fall, that fall would merely lessen the number of labourers, without having any tendency to degrade the habits or to lower the condition of those who survived. But in the actual state of things no rise of wages can ever be counteracted by an increased supply of workmen coming into the market until eighteen or twenty years after it has taken place; for there are few or no branches of industry in which an active and skilful labourer can be bred in a shorter period. During all this interval, therefore, the labourer is placed in a greatly improved situation. He has a greater supply of wholesome and nutritious food; he has better clothes and a better habitation; he is rendered more attentive to cleanliness; and as he rises higher in the scale of society, he naturally uses more prudence and circumspection in the forming of matrimonial connections. In short, his opinions respecting what is necessary for his decent and comfortable subsistence are raised, and the natural rate of wages is, in consequence, proportionally augmented.

But it is equally impossible suddenly to diminish the number of the labourers when wages fall. Such diminution cannot, as already stated, be effected otherwise than by the operation of increased mortality, or by a decrease in the number of births, or both. But unless the fall were very sudden and extensive, it would require a considerable number of years to render the effects of increased mortality very apparent; and it is so difficult to change the habits of a people, that, though the demand for labour were to decline, it would, notwithstanding, continue for a while to flow into the market with nearly the same rapidity as before. Nor would the ratio of the increase of population be materially diminished, until the misery occasioned by the restricted demand on the one band, and the undiminished supply on the other, had been very generally and widely felt.

In whatever way, therefore, wages may be restored to their natural level when the market rate declines; whether it be by an increase of mortality, or a decrease in the number of births, or both, it can never be the work of an instant. It must always require a considerable time before it can be effected; and there is in consequence an obvious risk lest the habits of the labouring class should in the mean time be degraded. When wages are considerably reduced, the poor are obliged to economise; and should the coarse and scanty fare that is thus, in the first instance, forced upon them by necessity, ultimately become congenial from habit, no check would be given to population, and the natural rate of wages would be permanently reduced. In such a case the cost of raising labourers would be diminished; and it is by this cost that the natural rate of wages, with which the market rate must generally correspond, is always regulated. A fall of wages is therefore as peculiarly injurious to the labourers, as a rise of wages is peculiarly beneficial to them. Its obvious tendency is to sink the natural rate of wages, and to degrade the condition of the largest and not least valuable class in society; and wherever the labourers can bear to retrench, or to descend from a higher to a lower station, it will have this effect, unless their desire to preserve their place in society should occasion a greater prevalence of moral restraint, and a slower increase of population. It is true, indeed, as is stated by Mr Malthus, that to whatever extent wages may fall, the labourers always possess the means of raising them in the end, to their former or to a higher level; that if they understock the market with labour, wages will continue high, notwithstanding the means of employment should be diminished; and that, if they overstock the market with labour, wages will be low, even though those means should be very considerably increased. But a principle of this sort is more easily laid down than acted upon. The fact is, that it is always very difficult to change the habits of a people with respect to marriage, and that no material alteration in this respect can ever be brought about except by slow degrees. Prudential considerations always operate with the greatest force on the middle and upper classes: wherever, indeed, the bulk of the people are in a very depressed condition, these considerations have comparatively little practical influence; and it is not till their circumstances begin to improve, and their prospects are brightened, that they begin seriously to weigh and reflect upon the consequences of improvident unions.

Dr Smith has said, that, “while the demand for labour and the price of provisions remain the same, a direct tax on the wages of labour can have no other effect than to raise them somewhat higher than the tax.” (P. 390.) And he further supposes, that to whatever extent the wages of manufacturing labour may be increased by a tax, the burden will ultimately fall, not on the manufacturers or merchants, but on the consumers, by an increase in the price of commodities; and that to whatever extent the tax may raise the wages of agricultural labour, it will really fall, not on the farmer or the consumer, but on the landlord.

None of these conclusions is correct. The immediate effect of a tax on wages on their amount, does not depend on the circumstance of the demand for labour continuing stationary, but on the mode in which the produce of the tax is expended. And the principles established in the article on Political Economy show, that when wages are raised, either in consequence of their being taxed, or by any other cause, that rise does not tend to raise the price of commodities or to lower rent, but really forms a deduction from the profits of the capitalists and other employers of labour.

In order to illustrate its operation, suppose that a tax of ten per cent. is imposed on the wages of labour, or that all labourers are made to hand over ten per cent. of their earnings to collectors appointed by government. Seeing that no part of this tax is taken from the capitalists, it is clear it cannot in any way diminish their means of employing labour. Its effect must, therefore, depend on the mode in which it is expended. If the produce of the tax be laid out on additional troops or sailors, it is easy to see that it can be productive of no immediate injury to the labourer; for were such the case, the agents of government would enter the market for labour with means of purchasing, derived not from the capitalists, but from the labourers themselves; and in consequence of this greater competition, wages would be raised in exact proportion to the additional means in the hands of government, or, in other words, to the amount of the tax. An example will render this apparent. Suppose that the labourers in a particular country receive as wages L.2,000,000 a year; and suppose further that government wish to increase the military force, and that to get the means of doing so, a tax of ten per cent. or of L.200.000 is laid on wages. The unavoidable consequence will be, that the capitalists will still come into the market for labour with the L.2,000,000 employed by them in the payment of wages, while the agents of government will also come into the same market with the L.200,000 derived from the tax; so that, between the two, wages will be raised in exact proportion to the tax.
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But if the tax were laid out, not, as has been supposed, in paying the wages of additional troops, but in increasing the pay of those already embodied, or of the other functionaries employed by government, its effect would be different, in this case there would be no additional demand for labour. The individuals receiving the tax would, indeed, have a greater demand for the produce of labour; but their greater demand being merely equivalent to the diminished demand of the labourers by whom the tax had been paid, would make no real addition to the total demand of the country. And thus it appears, that when the produce of a tax on wages is employed to hire fresh individuals for the service of government, it raises, by taking so much labour out of the market, the price of the remainder in proportion to its amount. But when its produce is employed to increase the wages of public functionaries or troops already embodied, the quantity of labour in the market is not lessened, and it must in consequence fall, in the first instance, wholly on the labourers. But, even in this last case, a tax on wages might not, and it is most probable would not, continue to be paid entirely out of wages. Such a tax, when first imposed, could hardly fail, by lessening the comforts, and perhaps also the necessaries, of the labourer, to give a serious check to the progress of population, as well by retarding the period of marriage as by increasing the rate of mortality; and in consequence of the diminution of labourers arising from these causes, wages might be raised so as to throw the tax either wholly or partially on the capitalists.

But it must at the same time be observed, that, for the reasons already stated, there are very considerable obstacles to a rise of wages in the way now pointed out; and should their reluctance to change their habits as to marriage lead the poor to submit to a lower standard of comfort, the rate of wages would be permanently reduced, and the condition of the great mass of society changed in so far for the worse. But as whatever has any tendency to degrade the habits of the bulk of the people, or to reconcile them to a lower scale of living, should be carefully guarded against, we should be disposed to consider taxes on wages as decidedly objectionable, unless their produce were expended on the employment of additional troops, or in removing labour from the market. And even in the cases in which taxes on wages are so expended, it seems very questionable whether they should be resorted to. It would be exceedingly difficult to convince any considerable number of labourers that the produce of a tax on wages, however laid out, ever reverted to them. They would see the immediate sacrifice they were called upon to make, but they would see no more. The rise of wages would be ascribed to causes which the tax would not be considered as promoting, but as counteracting. Such taxes would therefore be in no ordinary degree unpopular. And, besides, it is clear that if they are expended so as to raise wages, and otherwise they ought on no account to be imposed, they may as well be laid directly on the capitalists. If the latter do not pay such taxes at first, they must pay them at second hand. And though their effects were in other respects somewhat different, a prudent administration would rather choose to lay a direct tax on the employers of labour, than to tax them indirectly by laying it in the first instance on the labourers. It is true that this direct mode of taxing capitalists is productive of no real advantage to the labourer; but neither is it productive of any real injury to his employer; and the circumstance of its tending to lessen popular irritation, and to facilitate the imposition of the tax, is sufficient to make it be preferred.

It is obvious, from what has just been stated, that the real injury inflicted on the labourers by a tax on wages, expended in the way now supposed, consists not in its immediate, but in its remote effects. By falling on profits, its tendency is to diminish the power to accumulate capital; and when carried so far as to have this effect, it cannot fail, unless the stimulus previously given to population be at the same time diminished by the more powerful operation of the principle of moral restraint, to depress the condition of the labourers, and lower the natural rate of wages.

Having thus endeavoured to trace and exhibit the effects that would result from the imposition of taxes separately affecting rent, profits, and wages, we shall now proceed briefly to inquire into the effects that would result from the imposition of a tax proportioned to the income of each individual.

Sect. IV.— Tates on Income.

The reader may perhaps be disposed to regard this section as superfluous. All incomes being derived from rent, profit, or wages, it may seem that the previous discussions have exhausted the subject; and that, in order to estimate the operation of the tax in any particular instance, we have merely to ascertain the source whence the income of the party is derived, and then to apply the principles already laid down. But this would be a most fallacious conclusion. Taxes on professional incomes, or on the wages of professional men, are very different in their operation from taxes on the wages of common labourers. And besides this, there are a great many nice and difficult questions to be examined before we are in a condition satisfactorily to appreciate the operation of taxes on income.

In arguing this question, we may begin by admitting that an income-tax is, at first sight, apparently the fairest of all taxes. It seems to make every one contribute to the wants of the state, in proportion to the revenue which he enjoys under its protection; while, by falling equally on all, it occasions no change in the distribution of capital, or in the natural direction of industry, and has no influence over prices. It were much to be wished that any tax could be imposed having such effects; but we are sorry to be obliged to state that none such has hitherto been discovered, and that those who expect that such effects should follow the imposition of a tax on income will be very much disappointed. An income-tax would, no doubt, have the supposed effects, were it possible fairly to assess it. But the practical difficulties in the way of its imposition are not of a sort that can be overcome. So much is this the case, that taxes on income, though theoretically equal, are, in their practical operation, the most unequal, oppressive, and vexatious of any that it is possible to imagine.

The difficulties in the way of assessing income are of two sorts: 1st, The difficulty of ascertaining the amount of the annual revenue of different individuals; and, 2d, Supposing that amount to be known, the difficulty of laying an equal tax on incomes derived from different sources.

1. It would be useless to dwell at any considerable length on the first of these heads. Incomes arising from the rent of land and houses, mortgages, funded property, and such like sources, may be learned with tolerable precision; but it neither has been, and, we are bold to say, never will be, possible to determine the incomes of farmers, manufacturers, dealers of all sorts, and professional men, with any thing like even the rudest approximation to accuracy. It is in vain to attempt to overcome this insuperable difficulty by instituting an odious inquiry into the affairs of individuals. It is not, indeed, very likely that any people, not altogether enslaved, would tolerate, in ordinary circumstances, such inquisitorial proceedings; but whether they did or did not, the result would be the same. The investigations would be worthless; and the commissioners of an income-tax would in the end have nothing to trust to but the declarations of the parties. Hence it is that the tax would fall with its full weight upon men of integrity, while the millionaire of “easy virtue” would well nigh [7:21:107]escape it altogether. It would, in fact, be a tax on honesty, and a bounty on perjury and fraud; and, if carried to any considerable height—to such a height as to render it a prominent source of income—it would undoubtedly generate the most barefaced prostitution of principle, and would do much to obliterate that nice sense of honour which is the only sure foundation of national probity and virtue.

2. But supposing it were possible (which it plainly is not) to get over this fundamental objection, and that means were devised for ascertaining the incomes of different individuals with something like precision, we should have made but a very small progress towards the assessment of the tax. On one point, indeed, there can be no difficulty. Property-taxes ought undoubtedly to be laid on all sorts of property, and income-taxes on all sorts of income. But the question immediately occurs, whether the tax should be of the same magnitude on all sorts of income? And if this question be answered in the negative, we have next to inquire into the principle on which distinctions are to be made.

Those who affirm that an income-tax should be laid equally on all incomes, from whatever source derived, contend that the hardship of such a proceeding is not real, but apparent. According to them, the incomes of lawyers, physicians, clergymen, and other professional men, must always bear a certain relation to the incomes of the other classes of the community; but if the former were not taxed to the same extent as the latter, this relation would be subverted; the condition of professional men would be relatively improved; and it is alleged that, under such circumstances, there would be a greater influx of members into professional businesses, whose competition would depress the incomes of those engaged in them, so as to place them once more on a level with landlords, capitalists, &c., on whom the full weight of the tax is supposed to fall. On this ground it is contended that the tax should be made to press equally on all incomes, and that there is no injustice in making the same deduction from the fees of a lawyer or physician, as from the rent of a landlord, or the profit of a capitalist; for, supposing that the former were partially or wholly exempted from the tax, he would be as much injured by the greater competition that would grow out of such exemption, as by being subjected to the full amount of the tax.

These statements, though in some degree true, are in the main fallacious. Professional fees, when once fixed, are not easily altered. Notwithstanding the heavy fall of rents and profits since the peace of 1815, the fees of professional men have not materially varied; nor did they vary materially during the previous period of depreciation. We doubt whether the imposition of a peculiar tax, of a moderate amount, on professional incomes, or their total exemption from such tax, if laid on incomes arising from other sources, would have any sensible influence on fees. If it were very heavy, it might, and most probably would, in the long run, affect them to a greater or less extent; but its operation could not be in any case immediate; and unless the tax exceeded all reasonable bounds, there is but little ground for thinking that it would very materially affect them.

But suppose it were really true that professional incomes always vary at the same time and in the same degree as other incomes, this would not justify the laying an equal tax on them all. A landlord receives L.500 a year of rent, and an attorney or an apothecary makes L.500 a year by his business. But though the income of each be at present the same, their ability to pay taxes is materially different; for the income of the first arises from a comparatively lasting source, whereas that of the latter is dependent on his life and on his health. And hence, in order to lay the same burden on both parties, we must calculate the present value of the income enjoyed by each, and lay the same tax on it; or, which would come to the same thing, we must deduct from the income of the professional man, such a portion as would effect an insurance on his life for a sum equivalent to the present value of his income, and assess the tax on the remainder. This is the only way in which, supposing incomes to be known, it is possible fairly to tax them. It point of fact, however, it would be all but impracticable to proceed in this way. To illustrate the principle, suppose that a clergyman is forty years of age; that he has an income of L.1000 a year, and that it is required to decide how much he should contribute to a tax of ten per cent. on all incomes considered as perpetuities. Here we are met at the very outset by the difficulty of deciding as to the standard by which to estimate A’s expectation of life. If we take the Northampton table, we shall obtain a certain result, if we take the Carlisle table we shall have another, and if we take Mr Finlaison’s table we shall have a third result, all differing widely from each other. But suppose that the Carlisle table is selected; A’s expectations will be 27∙61 years. Having got thus far, we have next to decide upon the rate of interest at which the present value of A’s annuity or income is to be estimated. Every body knows that the answer to the question which we are endeavouring to solve, depends materially on the assumed rate of interest; and there would be endless disputes as to which rate should be fixed upon. In the event, however, of four per cent. being selected, the present value of A’s income would be L.16,500, yielding a perpetual revenue of L.660; so that he ought to contribute L.66 to the tax.

This is the way in which taxes on income must be assessed, if they be imposed with any pretensions to fairness. It may be objected, perhaps, that the fundamental supposition on which the income is valued and the tax imposed, viz. that A being at present forty years of age, will live twenty-seven and a half years longer, is quite gratuitous; that it is merely an average rule deduced from observations made on a large number of individuals; and that for any thing we can affirm to the contrary, A may die to-morrow. But all this may be admitted without impeaching the principle laid down above; for the difference between A’s actual income of L.1000, and the corresponding perennial income of L.660, that is, L.340, will, if accumulated for twenty-seven years and a half at four per cent., produce L.16,500, and an insurance office would transact with A on this footing, or on one not very different.

These statements show how taxes on professional incomes ought to be imposed; and they also show how very difficult, or rather how impossible, it would be, fairly to assess such incomes, even if there were any means of learning their amount with so much as an approach to precision. It is to no purpose to talk about establishing uniform rates of deduction. Unless wholesale injustice is to be perpetrated, all uniformity in cases of this sort must be rejected. Each case must be judged of separately. The income of two lawyers may be the same, but if their ages differ, they cannot be taxed to the same amount without trampling on every principle of justice; nor when interest is four per cent., is the tax to be the same as when it is three or five per cent.

But it is said that this difficulty of taxing professional incomes is a good reason for exempting them wholly from the tax, which should fall only on the incomes of those possessed of real property. We take leave however to dissent entirely from this conclusion. The difficulty of assessing professional incomes is a sufficient reason for rejecting an income-tax altogether; but it is assuredly no reason for making it partial, and consequently unjust and oppressive. Professional men contribute to taxes on commodities. And if these be repealed, and an income-tax, from which professions are exempted, be imposed in their stead, an obvious injustice will be done to the other classes, who will be sad.
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cled with the whole of a burden of which they have hitherto borne a part only, and which should press equally on all ranks and orders. Were professional incomes exempted because of the difficulty of fairly assessing them, the principle of exemption would require to be carried a great deal farther; for many incomes derived from real property are quite as evanescent as those of professional men, and must be computed in the same manner. It is needless to say that no proposal for exempting the owners of cotton or flax mills, ships, warehouses, houses, &c. from taxes laid on the property or incomes of landlords, fundholders, mortgagees, &c. would either be tolerated, or could be thought of for a moment. But in assessing the incomes of the owners of ships, mills, and similar property, most of the difficulties would have to be encountered that make the taxing of professional incomes so impracticable. An estate, abstracting from the buildings and improvements made upon it, may be regarded as a lasting source of revenue; but a ship, a house, a mill, &c. are all perishable, and before the latter can be taxed in the same ratio as the former, the degree of their durability must be determined, and the income arising from them reduced to a perpetuity. Suppose, for example, that a tax of ten per cent. is imposed on revenue arising from lands, funds, and mortgages, and that it is required to lay an equivalent tax on income arising from houses, shops, warehouses, mills, ships, canals, and such like property: in this case we should be obliged to begin by estimating the present value of the shop, mill, ship, or other property yielding the revenue proposed to be taxed. Having done this, we should next have to estimate the probable duration of such property; and then, in order to get the nett or taxable income, we should have to deduct from the gross income such a sum as would suffice, being accumulated at the ordinary interest of the day to replace the shop, mill, &c. when it was worn out. If an income-tax is to be imposed on fair principles, and made to press with the same severity on all classes according to their ability to bear it, such is the mode in which it must be laid on. But the difficulties in the way of such a course are almost as great as those in the way of taxing professional incomes. There would evidently be great room for doubt, evasion, and fraud in the valuation of the property; and though this were got over, how is its probable duration to be ascertained? The power to determine a point of this sort could not be intrusted to officers; for if so, it would open a door to every sort of corruption and abuse. Neither is there any standard to which it is possible to refer in estimating durability, seeing that it must vary in every case from a thousand local and almost inappreciable circumstances. Although, therefore, it were conceded, that taxes on income are, in principle, the best of any, the above statements are sufficient to show that this circumstance should go for little in the way of recommending them. It is of very trifling consequence whether a tax be theoretically good or bad; it is in a practical point of view only that we have to deal with it; and however well it may look in demonstrations on paper, if it be practically impossible fairly to assess it, it ought without hesitation to be rejected.

Even as applied to the rent of land, an income-tax is in many instances grossly unfair. Two estates yield the same rent, but one is naturally very inferior to the other,—its deficiencies having been balanced by the execution of expensive improvements. Where, then, would be the justice or the policy of laying the same tax on the rental of both estates? A third, or perhaps a half, of the rent of the one really consists of the interest of capital laid out on improvements, most of which are as little durable as either shops or cotton-mills. Hence the obvious injustice of laying the same tax on the rent of an improved as on that of an unimproved estate; and yet, as has been already seen, we could adopt no other criterion; for all the tax collectors of the empire, even if they were assisted by as many farmers, would not be able to resolve the rent of an improved farm into its constituent parts; that is, to separate what is really paid for the natural and inherent powers of the soil, from what is paid for the capital laid out on improvements.

It is unnecessary, we think, to say more on this branch of the subject It has been seen, in the first place, that it is not possible to acquire any accurate information as to the magnitudes of the incomes enjoyed by some of the largest and most important classes; and it has next been seen, that though such information were obtained, the sources whence different incomes arise are so very various, and so very different in their degrees of durability, that all attempts to impose on them a really equal income-tax must prove utterly abortive. The truth is, that an equal income-tax is a desideratum which is not destined ever to be supplied. After the legislature had done all that could be done to make it equal, it would be grossly unequal. To impose it only on certain classes of incomes, or to impose it on all incomes, without regard to their origin, would be alike subversive of every principle of justice. Nothing therefore remains but to reject it altogether; or, at all events, to resort to it only when money must be had at all hazards,— when it is better that injustice should be perpetrated than that the public treasury should be empty. An unreasoning necessity of this sort, and nothing else, can ever justify either taxes on property or on income.

It has been contended by M. Say and others, that a tax on income should be imposed according to a graduated scale, and made to increase according to the increase of the incomes subject to its operation. A tax, say of L.10, is said to be more severely felt by the possessor of a property or of an income worth L.100, than a tax of L.100 or L.1000 by the possessor of a property or of an income of L.1000 or L.10,000; and it is argued, that in order fairly to proportion the tax to the ability of the contributors, such a graduated scale of duty should be adopted as would press lightly on the smaller class of properties and incomes, and increase according as they became larger and more able to bear taxation. We take leave, however, to protest against this proposal, which is not more seductive than it is unjust and dangerous. No tax is a just tax unless it leave individuals in the same relative condition in which it found them. It must of course depress, according to its magnitude, all those on whom it falls; and it ought to fall on every one in proportion to the revenue which he enjoys under the protection of the state.^[9. That is, of course, supposing all revenues reduced to the same denomination, or to perpetuities. ] If it either pass entirely over some classes, or press on some less heavily than on others, it is imposed on an unjust principle. Government, in such a case, has plainly stepped out of its proper province, and has assessed the tax, not for the single legitimate purpose of appropriating a certain proportion of the revenues of its subjects, adequate to meet the public exigencies, but that it might at the same time regulate the incomes of the contributors, that is, that it might depress one class, and elevate another. The toleration of such a principle would necessarily lead to every species of abuse. That equal taxes on property or income will be more severely felt by the poorer than by the richer classes, is indeed undeniable; but the same may be said of every imposition which does not subvert the subsisting relations among the different orders of society. The hardship in question is, in fact, one of the evils of poverty, and to attempt to alleviate it by adopting such a graduated scale of duties as has been proposed, would really be to impose taxes on the wealthier part of the community’, for the benefit of their less opulent [7:21:109]brethren, and not for the sake of the public revenue. Let it not be supposed that the principle of graduation may be carried a certain extent, and then stop.

Nullus semel ore receptus

Pollutas patitur sanguis mansuescere fauces.

The reasons that made the step be taken in the first instance, will impel you forwards. Having once given way, on what pretence can you stop till you have seized upon all that belongs to every man above L.500 a year, before you tax individuals having less than that amount of income? And should this not be enough, as would speedily be the case, why should you not fix the limits at L.300 a year, and confiscate all incomes above that amount? To suppose that capital would continue to be employed in a country cursed with a graduated income or property-tax would be all but absurd. Where such a tax is adopted, there can be no security. The moment you abandon the cardinal principle of exacting from all individuals the same proportion of their income or of their property, you are at sea without rudder or compass, and there is no amount of injustice and folly you may not commit.

In order to furnish the means of defraying the enormous cost of the war begun in 1793, Mr Pitt proposed, in 1797, to treble the amount of the assessed taxes, or duties on houses, windows, horses, carriages, &c. This plan, however, did not answer the expectations of its projectors, and next year it was abandoned, and a tax on income substituted in its stead. According to the provisions of the act imposing this tax, all incomes of less than L.60 a year were exempted from assessment; an income of from L.60 to L.65 was taxed one one hundred and twentieth part; and the rate of duty increased through a variety of gradations, until the income reached L.200 or upwards, when it amounted to a tenth part, which was its utmost limit; a variety of deductions being at the same time granted, on account of children, &c. The commissioners to whom the management of this tax was intrusted were chosen by the freeholders of counties and the electors of boroughs, in the same way as their representatives in parliament, only that a smaller qualification was sufficient to enable any one to be elected a commissioner. The services of the commissioners were gratuitous; and they were sworn to preserve the most inviolable secrecy with respect to the affairs of individuals. They were authorized to call for returns from every person whose income they supposed to exceed L.60 a year; and in the event of their being dissatisfied with these returns, they were empowered to call for written explanations, and ultimately for the oath of the party. But this examination was rarely necessary, except in the case of incomes derived from wages, from capital employed in manufacturing and commercial business, or from the interest of loans; the rental of landlords being, in most cases, learned from the terms of the leases held by their tenants; while the profits or incomes of the tenants were estimated to amount in England to three fourths, and in Scotland to half the rent paid the landlords! The commissioners were assisted, or rather overlooked, by the tax-surveyors appointed by government, who were required to see the provisions of the act strictly enforced, and whose duty it was to scrutinize all returns of income, to challenge such as they considered fraudulent, to object to the deductions allowed by the ordinary commissioners, and to bring the matter under the review of the commissioners of appeal, whose sentence was final. Infinite fraud and evasion were practised; and nothing could be more glaringly unjust and absurd than the rule for estimating farmers’ incomes. But the peculiar circumstances of the country at the time made this injustice be submitted to with comparatively little reluctance; and, on the whole, the provisions of the act were enforced better than could have been anticipated.

This tax was repealed in 1802, after the peace of Amiens, having produced, at an average, about five millions and a half annually.

In 1803, the income-tax, under the name of property-tax, was again revived. The assessment began, as before, on incomes so low as L.60 a year, and gradually increased until the income reached L.150 a year, when it amounted to five per cent. which was its highest rate. An addition was made to this tax in 1805; and in 1806, during the short-lived administration of Mr Fox and Lord Grenville, the assessment was raised to ten per cent. on all incomes, however small, arising from land or capital. Professional incomes under L.50 were exempted from the tax; and incomes of that sort exceeding L.50 and under L.150, the limit at which they became subject to the full assessment of ten per cent., were allowed deductions, varying inversely as their magnitude. This tax was finally repealed in 1816, and never would have been submitted to, but for the conviction that it was indispensable for carrying on the desperate struggle in which we were then engaged.

We subjoin, from a parliamentary paper presented to the House of Commons on the 26th February 1823, a return of the total gross and n ett assessments to the property or income tax, for the year ending 5th of April 1815 :—

Grow Nett

Assessment. Assessment.

A. Lands, tenements, hereditaments, L.5,923,189

B. Houses, lands, and tenements 2,734,451 2,176,228

C. Funded and stock properties 2,885,505 2,885,505

D. Profits and gains of trade 3,831,088 3,146,332

E. Salaries, pensions, &c 1,174,456 1,167,678

Totals L.16,548,985 L.15,298,982

The following is the return of the value of the several species of property on which the assessment was made for the years ending 1813 and 1814, ending the 5th April 1814 and 1815, viz.—

schedules. 1813. 181«.

A L.56,701,923 L.60,138,330

B 36,336,883 38,396,144

D 36,080,167 38,310,935

K 11,380,748 11,744,557

C. Not stated, but estimated at... 30,000,000 30,000,000

Totals L.170,499,721 L.178,589,966

Sect. V.— Poor-Rates.

The incidence and effect of poor-rates depend oh the mode in which they are imposed. If they were laid exclusively on the land, and levied proportionally to its rent, they would really be a tax on rent, and would be defrayed by the landlords. If they were laid exclusively on the rent of houses, they would, in certain circumstances, fall wholly on the occupiers, in others on the builders, and in others on the occupiers and ground-landlords; and if they were laid on profits, they would fall equally on farmers, manufacturers, and merchants, or on capitalists in general. In the actual state of things in this country, we believe that a much larger proportion of the poor-rates falls on the farmer than on any one else; and they, consequently, contribute to raise the price of his produce just as any other tax affecting either his crop or the instruments used by him in cultivation. Mr Ricardo allowed for this greater pressure of the poor-rates on the farmer in estimating the countervailing duty to be laid on foreign corn, to balance the excess of taxes affecting that raised at home.

Having thus endeavoured to exhibit the operation, and to trace the ultimate incidence and effect, of such taxes as [7:21:110]fall directly on income, we come now to the second branch of our subject, or to the consideration of those taxes which fall indirectly on income.

PART III.—INDIRECT TAXES.

Sect. I.— Advantages and Disadvantages of Indirect Taxes,

Though most governments have had recourse to direct taxes, they have rarely, at least in Europe, formed the sole or even principal source of their revenue. Indirect taxes have almost invariably been the greatest favourites both of princes and subjects; and there is a variety of solid reasons why this should be the case. The burden of direct taxation is palpable and obvious. It admits of no species of disguise or concealment, but makes every one fully sensible of the exact amount of income taken from him by government. We are all, however, extremely averse from parting with property, except we obtain some more acceptable equivalent in its stead. And as the benefits derived from the institution of government are neither so very obvious nor striking as to be easily and readily felt and appreciated by the bulk of the people, there is, in the great majority of cases, a decided disinclination to pay a large amount of direct taxes. It is for this reason that governments have so generally had recourse to indirect taxes. Instead of exciting the prejudices of their subjects by openly demanding a specific portion of their incomes, they have taxed the articles on which these incomes are usually expended. This ingenious plan conceals the amount of taxation, and makes its payment appear in some measure voluntary. The tax being generally paid, in the first instance, by the producers, the purchasers confound it with the natural price of the commodity. No separate demand being made upon them for the tax, it escapes their recollection; and the article which they receive seems the fair equivalent of the sacrifice made in acquiring it.^[10. Nero was supposed to have abolished the duty of four per cent. on the slaves sold in Rome, when he really did no more than order it to be paid by the seller instead of the buyer. “Remissum” says Tacitus, “ specie magis quam vi; quia cum venditor pendere juberetur, in partem pretii emptoribus accrescebat.” (Annal, lib. xiii. cap. 32.) ] Such taxes have also the advantage of being paid by degrees, in small portions, and at the time when the commodities are wanted for consumption, or when it is most convenient for the consumers to pay them.

Besides their greater facility of imposition, indirect taxes have been frequently supposed to have the further and exclusive advantage of acting as a stimulus to industry. “Dans la perception directe,” says the Marquis Garnier, “l’impôt se montre sans nul déguisement; il vient sans être attendu, à cause de l’imprévoyance si ordinaire au commun des hommes, et il apporte toujours avec lui de la gene et du découragement. Mais l’impôt indirect, en ajoutant successivement un surcroit de prix aux articles de consommation générale et journalière, au moment où tous les membres de la société ont contracté Thabitude des ses consommations, rend ses divers articles un peu plus couteux à acquerir, c’est-à-dire, qu’il donne lieu à ce qu’il faille, pour se les procurer, un surcroit proportionné de travail et d’industrie. Or, si cet impôt est mesuré de manière à ne pas aller jusque à décourager la consommation, ne semble-t-il pas, dans ce cas, agir comme un stimulant universel sur la partie active et industrieuse de la société, qui l’excite à un redoublement d’efforts, pour n’être pas obligé de renoncer à des jouissances que Thabitude lui a rendues presque nécessaires, et qui, en conséquence, donne un plus grand développement aux facultés productives du travail et aux ressources de l’industrie? Ne doit-il pas en résulter, qu’après l’impôt, il y a la même somme de travail et d’industrie qu’auparavant pour fournir aux besoins et aux jouissances habituelles des hommes qui composent la classe laborieuse, plus la somme de travail et d’industrie qui a dû pourvoir au surcroit de prix destiné à l’impôt? Or, cet impôt, ou ce surcroit de produit que se paye, étant dépensé par le gouvernement qui le recueille, sert à alimenter one nouvelle classe des consommateurs, qui forment des demandes que l’impôt les met à porte de payer.” (Préface à la Traduction de la Richesse des Nations, tome i. p. 66, éd. 2de.)

The truth of the greater part of this statement cannot be disputed. It is, however, essential to observe, that the whole effect ascribed by M. Garnier to indirect taxes, in stimulating industry, depends on the circumstance of their being so moderate as not to discourage consumption; or, which is really the same thing, that they are so moderate that the contributors may defray them by increased exertion and economy. Were this not the case, they would have a precisely opposite effect, and instead of acting as a stimulus to production, would certainly occasion its decline. We believe, however, that a moderate tax on income, provided it could be fairly assessed, would have nearly the same effect on industry as moderate taxes on expenditure. It would serve as a spur to excite every one to make additional exertions that he might preserve his capital unimpaired, and retain his former command over the necessaries and luxuries of life. Increase of exertion is not an exclusive consequence of indirect or direct taxation; but it is an exclusive consequence of moderate taxation, whether it be direct or indirect; just as a decay of industry, and a general impoverishment, are not the exclusive consequence of any particular tax, but of all taxes whatever, when they are carried to an excessive height.

The great superiority of taxes on expenditure over taxes on income, consists in the facility of imposition: that they labour under some considerable disadvantages, is most true, though these have been much exaggerated. It is alleged, in the first place, that taxes on commodities necessarily alter the natural distribution of the capital and industry of a country, and force them into less advantageous channels; because, as already seen, when a tax is laid on a particular class of commodities, the producers, in order to raise the price proportionally to the tax, diminish the supply in the market, by transferring a portion of the capital employed in the production of the taxed commodities to some other business. But it is to be observed, that this effect, if it be sensible at all, is experienced only when a duty is first imposed; and that after a short while it is blended with the cost of production, and has no farther influence over the distribution of capital. It is also true, that, provided the tax be not oppressive, or so high as to drive capital wholly from the business, it acts as a stimulus to invention, and makes those engaged in the business exert themselves, by new efforts of ingenuity and economy, to find out means of paying the tax without adding to the price of the articles produced, or withdrawing any portion of their capital from the business. In many instances, these efforts have been completely successful; and, in some instances, the influence of the tax has been more than neutralized by the exertions made to defeat it.

Taxes on commodities being almost always paid by the producers before they are sold to the consumers, their effect, it is said, is not only to increase prices by the whole amount of the duties, but also by the profits due to the manufacturers by whom they have been advanced. But though this circumstance undoubtedly operates to increase prices, its influence in this respect has been greatly overrated by Sir Matthew Decker, M. Say, M. Sismondi, and others. The latter has calculated that a tax of 4000 francs, [7:21:111]paid originally by a manufacturer whose profits were ten per cent. would, if the manufactured commodity only passed through the hands of five different persons before reaching the consumer, cost the latter the sum of 6734 francs. This calculation proceeds on the supposition, that he who first advanced the tax would receive from the next manufacturer 4400 francs, and he, again, from the next 4840 francs; so that at each step ten per cent. on its value should be added to it. “But this,” as Mr Ricardo has justly observed, “is to suppose that the value of the tax would be accumulating at compound interest; not at the rate of ten per cent. per annum, but at an absolute rate of ten per cent. at every step of its progress. M. Sismondi’s statement would be correct, if five years elapsed between the first advance of the tax and the sale of the taxed commodity to the consumer; but if one year only elapsed, a remuneration of 400 francs, instead of 2734, would give a profit at the rate of ten per cent. per annum to all who had contributed to the advance of the tax, whether the commodity had passed through the hands of five manufacturers or fifty.” (Principles, &c. 3d edit. p. 459.)

It is certainly true that duties on commodities encourage smuggling. “They tempt,” says Dr Smith, “persons to violate the laws of their country, who are frequently incapable of violating those of natural justice, and who would have been in every respect excellent citizens, had not the laws of their country made that a crime which nature never meant to be so.” (P. 378.) In consequence of this tendency, duties on commodities require the employment of a great number of revenue officers; and as they expose the producers of the taxed articles to considerable inconvenience and hardship from domiciliary visits, they force them to indemnify themselves by making a corresponding addition to the price of their goods. But this, after all, is not so much a consequence of duties on commodities, as of their abuse, or of their being carried to an oppressive extent. So long as they are confined within reasonable limits, the temptation which they create to engage in smuggling transactions may be very easily obviated. And it will be immediately seen, that duties so restricted are uniformly more productive than those which are carried to such a height as to hold out any great encouragement to smuggling.

It may be said that duties on commodities do not fall on individuals in proportion to their means of paying them; and that, while they press with undue severity on persons with large families, or who occupy prominent stations, they may be almost wholly avoided by rich misers and those in obscure stations. But in taxation we have only a choice of difficulties. However desirable, it is, as has been already seen, quite impossible to tax individuals in proportion to their incomes; and any attempt to impose an equal income-tax would not only be sure to fail, but would he attended with the most disastrous effects. We must, therefore, resort to the best practicable taxes; that is, to duties on commodities. And it does not really appear that such duties can be considered as unequal. If duties be laid on sugar or wine, those who abstain from their use will, of course, escape them: surely, however, those who use such articles have no good right to complain of this, seeing that they may also, by being equally self-denying as the others, exempt themselves from the duties.

Sect. II— Inquiry into the Incidence and Effect of Indirect Taxes.

1. Taxes on a particular commodity.— With regard to the influence of taxes on the price of commodities, it is clear that if a duty be laid on a particular commodity, and not on others, its price, unless some corresponding facility be at the same time given to production, will sustain an equal rise; for if it did not rise in this proportion, the profits of the producers would be sunk below the common level, and their business would be abandoned. But it depends on the circumstance of the commodity being of the class denominated luxuries, whether a tax on it will fall wholly on the consumers. In so far as necessaries are consumed by landlords or capitalists, taxes on them are also defrayed by the consumers; but in so far as they are required for the consumption of labourers, taxes on them have the same effect as if they were laid directly on wages. We have already seen that there are but few cases in which taxes affecting wages are really defrayed by the labourers; and that their most common effect is to occasion an equivalent rise in the rate of wages, and a proportional fall of profits. It appears, therefore, that taxes on necessaries do not wholly fall on the consumers; but that they are partly defrayed by them, and partly also by the proprietors of stock, in consequence of their reducing the rate of profits. Such, however, is never the case with taxes on luxuries, or on commodities used only by the rich. Duties on velvets, on claret, and on coaches, for example, fall wholly on the consumers, and cannot be thrown on any one else. Such articles not being used by labourers, a duty on them can neither raise wages nor affect the rate of profit.

2. Ad valorem Taxes on all commodities.— It had been, we believe, uniformly supposed, down to the publication of the edition of the Wealth of Nations, by the author of this article, that an equal ad valorem duty on all commodities, by affecting them to the same extent, would not in any degree modify or change the relation or proportion which they previously bore to each other.^[11. See Mill’s F.lem. of Polit. Econ. 2d ed. p. 271. ] But it must be observed, that though an equal ad valorem duty would affect all commodities in the same proportion, it would not affect the profits of their producers in the same, but in a very different proportion; and it is by the degree in which the latter are affected that the relation of commodities to each other is determined. If all classes of producers uniformly employed the same proportions of fixed and circulating capital,^[12. It is, of course, taken for granted that the tiled capitals are of the same degree of durability, and that the circulating capitals are returnable in the same periods. ] an equal ad valorem duty would affect them all equally, and the values of their commodities, as compared with each other, would not be affected by its imposition. But this is not the actual state of things; different sorts of commodities are produced by the agency of very different proportions of fixed and circulating capital; and hence, were an equal αd valorem duty laid on them all, it would not affect profits equally, and would consequently cause a transfer of capital from one business to another, and a variation in the value of commodities, raising some and sinking others. To illustrate this, assuming that profits are ten per cent., let it be supposed, in the first place, that A advances L.1000 in wages at the commencement of the year, and that he receives the produce, which must, by the supposition, be worth L.1100 at the end of the year; in the second place, let it be supposed that B has a capital of L.11,000 vested in a highly durable machine, which is capable of performing its work without any, or with but very little, manual labour; the annual produce of this machine being, it is obvious, under the circumstances supposed, wholly made up of profits, and necessarily selling for L.1100; and lastly, let it be supposed that an equal ad valorem duty of ten per cent. is laid on commodities. Now, it is plain that in this case A and B will each bring, at the end of the year, commodities worth L.1100 to market, [7:21:112]and will therefore be respectively taxed L.110. But L.100 only of the value of A’s goods consists of profits, the , rest consisting of the capital laid out on the wages of labour; whereas the whole value of B’s goods consists of profits: hence it is clear, that while the duty would swallow up the whole of A’s profits and L.10 of his capital, it would only take ten per cent. of B’s profits. We have purposely chosen a case that sets the unequal operation of the tax in a striking point of view; but whenever there was any considerable difference in the proportions of fixed and circulating capital employed in producing different commodities, an equal ad valorem duty would operate in the way now pointed out. Such a duty would, therefore, be among the most injurious that could be imposed. It would cause an immediate derangement in all the channels of industry, and in the value of most descriptions of commodities. Capital would be driven from employments principally carried on by hand to those principally carried on by machinery; and while the value of the commodities produced by the former would rise, the value of those produced by the latter would fall, until they had been adjusted so as to yield the same rate of profit to the producers.

It has been contended by some distinguished economists, that supposing an ad valorem duty not to change the relation of commodities to each other, it would notwithstanding occasion a universal rise of price proportioned to the duty.^[13. Ricardo’s Principles of Political Economy, 3d ed. p. 281. Mill’s Elements, 2d ed. p. 272. ] Mr Mill, who has treated this subject at the greatest length, contends that this result would be occasioned, not by any change in the production of commodities, but by an increased rapidity of circulation. But it may, we think, be shown, supposing the hypothesis on which this question has been argued to be well founded, that an ad valorem duty would not have the effect ascribed to it. Suppose that an ad valorem duty of ten per cent. is laid on all commodities, and let us endeavour, by tracing its operation, to discover whether it would really have any effect on their price, assuming, for the moment, that it has no influence on their relative values. The duty must either be laid upon those who buy commodities, or upon those who sell them. Suppose that A goes to buy a commodity, and has got twenty shillings in his pocket: if the government officers take two shillings of this sum, A will, of course, have only eighteen shillings to offer for the commodity for which on former occasions he paid twenty shillings; but as the government agents will come into market with the money they have got from him, the obvious result will be, that he will get nine tenths of the commodity for his eighteen shillings, and that the officers will get the other tenth for their two shillings; so that there is no room or ground for any, even the smallest, change taking place in its price. Suppose now that the duty, instead of being laid on the buyer, is laid on the seller: in this case, the person who received the twenty shillings from A would have to pay two of them to a tax-gatherer; and therefore it is plain, that when he went to market he would have only nine tenths of the money in his pocket which he would have had if there had been no duty; though, as the government agents would, as before, go to market with the other tenth, the same result would take place, and prices would continue invariable.

It may also be observed, that though the determination of the question, with respect to the incidence of an equal ad valorem duty on all commodities, be of considerable importance in regard to the theory of the science, it is one that can never be brought to any practical test. An equal ad valorem duty might perhaps be imposed with considerable fairness on some of the principal commodities imported from abroad; but it is quite out of the question to suppose that such a duty, even were it as desirable as it is the reverse, should ever be imposed on the infinite variety of commodities produced within any extensive country. The greatest imaginable number of the most skilful and zealous officers would not suffice either to assess or to collect such a duty.

3. Taxes on Raw Produce. —The question respecting the ultimate incidence of taxes laid on the raw produce of the soil, is one of considerable nicety and difficulty. If land yielded no surplus to its possessors above the common and ordinary profit of the capital employed in its cultivation, the imposition of a tax on its produce, such, for example, as tithe, would occasion an equivalent increase of price. The level of profit may be temporarily, but it cannot be permanently, elevated or depressed in any particular branch of industry. And as there is no reason why the agriculturists should content themselves with a reduced rate of profit, when all other employments are yielding a higher rate, as soon as a tithe was imposed they would set about transfering a portion of their stock to some more lucrative business; and this transfer would continue until the diminution of supply raised prices to their proper level, and restored the equilibrium of profit. In such a state of things, tithe would indisputably operate precisely as an equivalent addition to the price of raw produce. But after various qualities of soil have been brought under cultivation, and rents have, in consequence, been pretty generally introduced, it is not so easy to trace the ultimate incidence and effect of tithes. They then appear to occasion a diminution of rent rather than a rise of prices. Farms which are tithe-free always bring a higher rent than such as are subject to that charge; and it is naturally concluded that, were tithes abolished, the depressed rents would be raised to the same level as the others. For this reason, in an advanced stage of society, tithe has not been considered as increasing the price of raw produce to the consumer, but as falling on rent, and as diverting a portion of it into the pockets of its rightful owners, the clergymen and lay impropriators. “Taxes upon the produce of land,” says Dr Smith, “are in reality taxes upon rent, and, though they may be originally advanced by the farmer, are finally paid by the landlord. When a certain portion of the produce is to be paid away for a tax, the farmer computes, as well as he can, what the value of this portion is, one year with another, likely to amount to, and he makes a proportional abatement in the rent which he agrees to pay to the landlord. There is no farmer who does not compute beforehand what the church-tithe, which is a land-tax of this kind, is, one year with another, likely to amount to.”

Clear however and conclusive as this statement appears on a first view, it is only under certain conditions and limitations that it holds good. It has been repeatedly shown that a very large proportion of the raw produce raised in every extensive country, is produced by means of capital laid out on the land in the view of obtaining the common and ordinary rate of profit at the time, and without its yielding any rent. It must also be observed, that the cost of producing this portion of the required supply of raw produce determines the price of the rest: for this portion is produced under the most unfavourable circumstances; and unless its producers were repaid their expenses and profits, it would not be brought to market, and a scarcity would ensue. But when a tithe is imposed, it affects, of course, the producers of this portion of the required supply, in common with the others. Inasmuch, however, as they pay no rent, it is clear they cannot throw the burden of tithe on a landlord: as they would not continue in their business unless [7:21:113]they obtained the same rate of profit as their neighbours, it appears unavoidably to follow, that either the price of corn must rise proportionally to the tithe, or that the former supply will no longer be brought to market

This last is the view that Mr Ricardo took of the operation of tithe. But though exceedingly ingenious, the same remark is applicable to this theory as to Dr Smith’s, that it is only under certain conditions and restrictions that it is correct. It is clear, for example, that the effect ascribed by Mr Ricardo to the imposition of a tithe depends, first, on the demand for com, or its consumption, remaining about the same after the imposition of the tithe as before; and, second, on the tithe being made to affect all, or nearly all, the land of a country, and on its being exacted from such foreign corn as may be imported. If either of these conditions be wanting, Mr Ricardo’s conclusions will be more or less vitiated; the tithe will not then occasion an equivalent increase of prices, nor fall wholly on the consumers.

I. Suppose, for the sake of illustration, that the mean price of corn in a country not affected by tithe, and which imports no foreign com, is fifty shillings a quarter; and suppose that a tithe, or duty of ten per cent is imposed on every species of raw produce raised in that country; were the demand for corn the same after the imposition of the tithe as before, it is clear, on the principle already laid down, that its price would rise to fifty-five shillings. But unless the consumption of the country were previously reduced to a minimum, it is not reasonable to suppose that the demand should continue the same; it might not, indeed, and it is most probable would not, be reduced in proportion to the tithe, but in some less proportion, as perhaps a twentieth part. Instead, therefore, of prices rising in exact proportion to the tithe, or five shillings a quarter, they would most likely only rise to half that amount, or two shillings and sixpence. But as this rise would not sufficiently indemnify the cultivators, they would relinquish the cultivation of some inferior lands; and as rent is determined by the extent of land under cultivation, the result, on the whole, would be, that half the tithe would fall on the consumers, by a rise of prices, and the other half on the landlords, by a reduction of rents.

II. But suppose that the tithe, instead of being laid on all the lands of a country, is only imposed on the half of them, and let us endeavour to trace the effects which it would then have. In this case, it is plain, inasmuch as only half the cultivators are affected by the tithe, that though they should, in order to escape its operation, restrict their cultivation one tenth, the supply of corn would only be reduced one twentieth part; and prices, supposing the demand to continue stationary, would only rise in that proportion. In point of fact, however, they would not rise in that proportion; for every increase of price, however slight, must always have some effect in lessening consumption. But to whatever extent prices might rise under the circumstances supposed, whether to a fourth or a third part of the tithe, for they could not rise to half its amount, it is contended that this rise would, by extending cultivation over the untithed lands to the same extent that it is contracted on those that are tithed, raise the rents of the former proportionally to the diminution of those of the latter, so that the burden of the tithe would still principally fall on the public. But the truth is, that in a case of this sort, it would be next to impossible to trace and determine the practical operation and real effect of tithe with any degree of precision. If the various qualities of land were of limited extent, and each differed by a well-defined outline from the immediately contiguous qualities, the previous conclusion would hold good. Such, however, is not really the case. Lands of different qualities differ from each other by imperceptible degrees. Whatever may be the limit to which tillage is carried at any given moment in an extensive country, the least rise of price would be sufficient to cause lands of almost the same degree of fertility to be brought under tillage, or additional capital to be laid out on the old land, or both; so that it is extremely doubtful whether so trifling a rise of prices as would be caused by the imposition of a tithe, under the circumstances supposed, would have any sensible effect on the rent of the untithed land.

It is needless to waste the reader’s time by endeavouring to prove, that if a country in which tithes are imposed were in the habit of importing a considerable quantity of foreign corn duty-free, such importation would throw the burden of tithe wholly on the landlords. Every one must see that in such a case the home-cultivators being altogether unable to limit the quantity of produce brought to market, the tithe would have no influence over prices.

According to the returns obtained under the income-tax act, the total annual value of all the land of England and Wales, in 1815, is estimated at L.29,476,840; of which lands of the annual value of L.9,904,378 were wholly tithe-free, while lands of the annual value of L.856,183 were tithe-free in part, and other lands of the annual value of L.498,843 paid only a low modus. So far, therefore, is it from being true that all, or nearly all, the land of England and Wales pays tithe, that it appears that about a third part is exempted from this burden; and if to the tithe-free land of England and Wales we add the whole of Scotland, it may he safely affirmed that more than half the cultivated land of Great Britain is altogether unaffected by tithe. It is obvious, therefore, for reasons already stated, that tithe in England, supposing it had no effect on consumption, could only raise prices a twentieth part, or five per cent. But, inasmuch as it would somewhat lessen consumption, it would most probably fall, in about equal proportions, on the landlords and the public; and were it not for the mode in which it is imposed, it would not be sensibly felt by either.

The truth is, that tithe is decidedly more injurious from its indirect operation, and more unpopular from the mode in which it is assessed, than from the magnitude of the burden which it really lays on the public. It is imposed and collected in the most vexatious and irritating manner; and has, in consequence, an incomparably greater effect in discouraging industry and exciting discontent than many heavier, but more judiciously assessed, taxes. It is said, by its apologists, to have the same effect, in as far as the interests of the farmers are concerned, as an equivalent amount of rent. But this is a most fallacious statement. Rent, when once fixed, must continue the same during the currency of the lease. Though an industrious and enterprising farmer should raise ten or twenty times the quantity of produce raised by a sluggard, his rent would not, therefore, be increased; and he would reap, as he ought, all the advantages of his greater industry and intelligence. Such, however, is not the case with tithes. To the sluggard they are invariable; to the industrious man they become more and more oppressive, and increase with every fresh outlay of capital and labour. Hence it is that, practically, tithes operate as a premium on idleness, and as a heavy and constantly increasing tax on industry. By preventing the cultivator from deriving the full and entire advantage of superior skill and increased exertion, they discourage his efforts, and contribute to render him indolent and indifferent. A farmer pays his rent willingly to the landlord; but he considers the clergyman as an interloper, who, without having contributed in any way to raise the crop, claims a tenth part of its gross amount. The occupier of a farm subject to this galling and vexatious charge, seldom believes that he is realizing the same rate of profit from the capital he employs as his neighbours in tithe-free farms; and we are told by Mr Stevenson, the well-informed author of the Agricultural Survey of the County of Surrey, that it is the common opinion, that a farm tithe-free is better worth twenty shillings an acre, than a [7:21:114]tithed farm equally favoured in soil and situation is worth thirteen shillings. In this way, tithes contribute indirectly as well as directly to raise prices; indirectly by generating an indisposition to apply fresh capital to the improvement of the soil, and directly by the positive addition which they make to the expense of cultivating bad land.

Dr Paley, who cannot surely be reckoned unfriendly to the real interests of the church, says, that “of all institutions adverse to cultivation and improvement, none is so noxious as that of tithes. A claimant here enters into the produce, who contributed no assistance whatever to the production; when years, perhaps, of care and toil have matured an improvement, when the husbandman sees new crops ripening to his skill and industry, the moment he is ready to put his sickle to the grain, he finds himself compelled to divide the harvest with a stranger. Tithes are a tax not only upon industry, but upon that industry which feeds mankind, upon that species of exertion which it is the object of all wise laws to cherish and promote.” (Paley’s Works, ii. p. 105, ed. 1819.)

“Tithe,” says Dr Smith, “is always a great discouragement both to the improvements of the landlord and to the cultivation of the farmer. The one cannot venture to make the most important, which are generally the most expensive, improvements; nor the other to rear the most valuable, which are generally, too, the most expensive, crops, when the church, which lays out no part of the expense, is to share so largely in the profit. The cultivation of madder was for a long time confined by the tithe to the United Provinces, which, being Presbyterian countries, and upon that account exempted from this destructive tax, enjoyed a sort of monopoly of that useful dyeing drug against the rest of Europe. The late attempts to introduce the cultivation of this plant into England have been made only in consequence of the statute which enacted that five shillings an acre should be received in lieu of all manner of tithe upon madder.” (P. 377.) As a further illustration of the principle here stated, we may mention, that the cultivation of flax and hemp in Ireland never succeeded until a low modus had been fixed by law; since which it has made a considerable progress.

A just sense of the injurious influence of tithe in obstructing agricultural improvement, and involving the clergy in unseemly contests with their parishioners, had long excited a general wish among well-informed individuals for their commutation; and this is now in the way of being effected, under the provisions of the act 6th and 7th Will. IV. cap. 71. This act directs that the average value of the tithes in each parish, during the seven years ending with 1835, should be ascertained, and distributed into equivalent quantities of wheat, barley, and oats, which are made a fixed and invariable rent-charge upon the land; and the clergy are to receive the value of these quantities, in all time to come, according to the current prices of the day. By this means they are liable only to fluctuations in the value of corn; and to these they would have been liable though no commutation had been effected. Commissioners have been appointed to carry the act into execution; and the tithes in a considerable number of parishes have already been commuted, conformably to its stipulations.

The effect of tithes and other taxes on the price of raw produce has been urged as a reason why an equal duty should be imposed on all such produce when imported from abroad. But all foreign corn must be paid for, either directly or indirectly, by an exportation of some species of manufactured commodities; and it is therefore clear, that the home producers of corn can have no claim to a protecting duty on the importation of foreign corn, unless the tithes, and other taxes falling on raw produce, exceed those which fall on manufactured goods. Heavy taxes, provided they be equally distributed, do not render any particular class less able to withstand the competition of foreigners than the others, and cannot therefore entitle them to a protecting duty. But if higher duties be laid on a particular description of commodities, the case is different. If, for example, while the duty on commodities in general were only ten per cent., a duty of twenty per cent. were laid on a particular article, its price must rise ten per cent. higher than the price of the rest, in order to maintain its producers in the same relative situation as before. It is plain, however, that in the event of the ports being opened to the importation of foreign goods free of duty, the producers of the heavily-taxed commodity will be deprived of the means of limiting its supply, and consequently of raising its price, so as to indemnify them for the excess of the tax. The ten per cent. excess of duty would then really operate as an equivalent bounty on the importation of the commodity; and if it were not defeated by a protecting duty of ten per cent., the home producers would be placed in a relatively disadvantageous situation, and would, most likely, have to abandon their business.

But this principle only holds, to its full extent, in the case of duties affecting manufactured products. If a direct tax of ten per cent. were laid on the hats produced in England, and on no other commodity, the hatters would most probably be ruined were foreigners permitted to import hats duty free. Manufactured goods are produced under the same, or, at all events, under very similar circumstances; so much so, that foreign competition must either be injurious to all the manufacturers of a particular description of goods, or to none. But in agriculture the case is otherwise. Corn is produced under very different circumstances, or from soils of very different degrees of fertility; and it is contended, that though the cultivators of the worst lands in tillage at any particular period might be injuriously affected by the unrestricted admission of foreign corn, the other cultivators, instead of being injured, would be really benefited by the rise of profit which must always follow every permanent reduction in the price of raw produce. Thus, suppose no duties were imposed on manufactured commodities, and that the ports were thrown open to the importation of foreign corn, without any countervailing duty to balance the tithe, the whole effect of such a measure would be to make the cultivation of inferior land be relinquished until the cultivators were able to raise eleven quarters for the same outlay that had previously been required to raise ten quarters. As soon as this contraction of tillage had been effected, the farmers would have nothing to fear from foreign competition. They would still realize the same rate of profit as the undertakers of other businesses; and the consumers would be able to purchase their corn for ten per cent. less than if a protecting duty had been imposed.

But it would be highly inexpedient and unjust for any government to act in this way. It would be inexpedient, because, by imposing a peculiar tax on corn raised at home, while foreign corn is admitted duty free, a most important branch of national industry would be depressed, and those engaged in it subjected to the greatest difficulties, before the equalization referred to above could be brought about. But supposing this to be accomplished, the measure would be most unjust, inasmuch as it would throw the whole burden of the peculiar tax on corn on the landlords. Rent consists of the difference between the produce obtained from the best and worst lands under tillage; and when, by admitting foreign corn duty free to come into competition with corn raised at home that is burdened with peculiar duties, inferior land is driven out of cultivation, the tax is thrown wholly on the landlords, and a particular class, which should bear no more than its fair share of the public burdens, is sacrificed for the advantage of the others. Hence it results, that in all cases in which higher duties are laid [7:21:115]on the raw produce raised at home than on manufactured goods, justice requires that a duty should be laid on all foreign raw produce, to countervail the excess of duty affecting home produce. Such a duty, by fitting all classes equally to withstand foreign competition, will preserve them in the same relative situation after the opening of the ports as previously, and will treat all parties, as they should ever be treated, with equal and impartial justice.

To whatever extent a countervailing duty may be laid on a foreign commodity, it would be proper to give the home producers of that commodity an equal, or nearly equal, drawback. If the home producers were refused such a drawback, they might say, “Before your duty, and before the price of our produce was raised in consequence of it, we could compete with the foreign grower in foreign markets. By making the remunerating price of our corn higher, you have deprived us of that advantage; therefore give us a drawback equal to the duty, and you, in every respect, restore us to the position in which we were before placed, both as it regards our own countrymen, as producers of other commodities less heavily taxed, and foreign growers of raw produce.” On every principle of justice, says Mr Ricardo, and consistently with the best interests of the country, this demand should be acceded to. ( On Protection to Agriculture, p. 16.)

Mr Ricardo supposed that the influence of the tithes and other taxes exclusively affecting raw produce, over those affecting manufactured goods, might be estimated at about ten shillings a quarter; and he therefore proposed that foreign corn should be freely admitted on paying this duty, and that a drawback of seven shillings should be allowed on exportation. “The duty of ten shillings a quarter is, I am sure, rather too high as a countervailing duty for the peculiar taxes which are imposed on the corn-grower, over and above those which are imposed on the other classes of producers in the country; but I would rather err on the side of a liberal allowance than of a scanty one; and it is for this reason that I do not propose to allow a drawback quite equal to the duty.” (Ibid. p. 80.)

The necessity of imposing this countervailing duty, originating, as it mainly does, in the imposition of tithes, is another and a very powerful argument for their commutation. We incline to think, that the countervailing duty on foreign produce might now be safely fixed at six shillings or seven shillings a quarter for wheat, and other grain in proportion. The drawback might, perhaps, be one shilling a quarter less than the duty; but there is really no good reason why it should not be equal.

Taxes on raw produce, by raising the price of the articles required for the food of the labourer, necessarily raise wages and tend to lower profits. Such taxes, therefore, fall with double weight on the capitalists; affecting them both as employers of labour, and as consumers. Indeed the principal disadvantage of taxes on raw produce consists in their tendency to lower profits. “With a permanently high price of corn,” says Mr Ricardo, " proportional wages would be high; and as commodities would not rise on account of the rise of wages, profits would necessarily fall. If goods worth L.1000, require at one time labour which cost L.800, and at another time the price of the same quantity of labour is raised to L.900, profits will fall from L.200 to L.100. They will fall not in one trade only, but in all. High wages equally affect the profits of the farmer, the manufacturer, and the merchant; nor is there any other way of keeping profits up than by keeping wages down. In this view of the law of profits, it is at once seen how important it is that so essential a necessary as corn, which so powerfully affects wages, should be sold at a low price; and how injurious it must be to the community generally, that, by prohibitions against importation, we should be driven to the cultivation of our poorer lands to feed our increasing population.”

4. Custom-Duties, or Duties on the Importation and Exportation of commodities. —These, like all other duties, are paid by the consumers of the commodities on which they are laid. When a government lays a duty on the foreign commodities which enter its ports, the duty falls entirely on its own subjects who purchase such commodities; for the foreigners would cease supplying their markets with them if they did not get the full price of the commodities exclusive of the tax; and, for the same reason, when a government lays a duty on the commodities which its subjects are about to export, the duty does not fall on them, but on the foreigners by whom they are bought. If, therefore, it were possible for a country to raise a sufficient revenue by laying duties on exported commodities, such revenue would be wholly derived from others, and it would itself be entirely relieved from the burden of taxation. No doubt, however, were one state to attempt to raise a revenue in this way, others would speedily do the same; and as the imports from abroad are always equal to the exports, and generally, indeed, exceed them, what a country gained on the one hand by a policy of this sort, would be necessarily lost on the other. It is further necessary, in imposing duties on exported commodities, to beware of laying them on such as may be produced at nearly the same cost by foreigners; for, under such circumstances, the duties would put an entire stop to their exportation, and make the market be supplied by others. It is only when a country possesses an exclusive advantage, whether natural or acquired, in the production of commodities, that a duty on their exportation is quite unexceptionable. Such duty does not fall on its native, but on its foreign customers; and when it is not carried so high as to balance the superior facilities of production, it has but a slight tendency to diminish the demand for the taxed articles. If the Chinese chose to act on this principle, they might derive a considerable revenue from a duty on exported teas, which would have to be entirely paid by the English and other foreigners who buy them. And there is perhaps no country which does not possess some commodity demanded by foreigners that might be charged with a moderate duty on exportation. The coal and tin, and perhaps also some species of the manufactured goods of Great Britain, may be in this predicament.

It was the great object of the professors of the mercantile system of political economy to facilitate the exportation of commodities of domestic growth, and to fetter and restrict the importation of those produced abroad; and it is to the prevalence of this system in modern Europe, and its influence on financial legislation, that the almost total exemption of exported commodities from duties, and the ruinous extent to which they have been heaped on those that are imported, are in a great measure to be ascribed.

There is, however, no reason to think, from what has been stated above, and from the competition that now prevails among different countries in all departments of industry, that duties on exports can· ever be made productive of any considerable amount of revenue. Hence it is satisfactory to know, that moderate duties on imports are at once among the most productive and the least objectionable of all taxes. They are collected with the greatest possible facility, involving no inquiry into the circumstances of individuals, as is the case with taxes on income or property; nor any interference of any sort with the processes carried on in the arts, as is the case with certain excise duties. By allowing imported goods to be lodged in bonded warehouses, under the joint locks of the king and the importer, the revenue is protected without its being necessary for the importer to pay the duties till the goods be withdrawn for consumption; so that, as already stated, but little additional capital is required by the importing merchant, and little [7:21:116]addition is made to the price of the goods through the previous advance of the duties. The total gross receipt of the customs-revenue of the united kingdom amounted, during the year ending the 5th January 1840, to L.23,508,681, collected at an expense of L.1,290,672, being at the rate of L.5. 9s. 9½d. per cent.; and we will venture to affirm, that no equal amount of revenue was ever raised in any country, or in any period of time, with so little difficulty and inconvenience.

Duties on imports and exports have been levied in almost every country which has had any foreign commerce. The Athenians laid a tax of a fifth on the corn and other merchandise imported from foreign countries, and also on several of the commodities exported from Attica.^[14. Anacharsis’s Travels, iv. p. 375. Eng. Trans. The quantity of corn usually imported from the countries on the Euxine into Athens amounted to about 400,000 medimni. See Clarke on the Connection between the Roman and English Coins, p. 58. ] The portoria, ^[15. “Huic vero proprie vectigalis denominatio convenit, quippe pro vehendis mercibus (unde vectigaD, soluto.” (Burman. De Vectigalibus Pop. Rom. cap. v.) ] or customs payable on the commodities imported into and exported from the different ports of the Roman empire, formed a very ancient and important part of the public revenue. They were imposed, as Tacitus has observed, when the spirit of liberty ran highest among the people. A consulibus et tribunis plebis instituta, acri etiam populi Romani tum libertate. (Annal, lib. xiii. cap. 50.) The rates at which they were charged were fluctuating and various, and little is now known respecting them. Cicero informs us (in ii. Ver. cap. 75), that the duties on corn exported from the ports of Sicily were in his time five per cent. Under the imperial government the amount of the portoria depended as much on the caprice of the prince as on the real exigencies of the state. Though sometimes diminished, they were never entirely remitted, and were much more frequently enlarged. Under the Byzantine emperors they were as high as twelve and a half per cent. (Burman. De Vectigalibus Pop. Rom. cap. v.)

Customs seem to have existed in England before the conquest. But the king’s first claim to them was established by statute, 3d Edward I. The inconveniences arising from the multiplicity of the various separate acts relative to the customs, caused Mr Pitt to introduce a bill, in 1787, for their consolidation. This bill was passed into a law, and several similar consolidations have since been effected. The last was by a statute passed in 1834; to which are subjoined tables, containing lists, ranged in alphabetical order, of the various articles of import and export, with the duties payable on each, and the drawbacks and bounties allowed on the exportation of particular kinds of British goods. See these lists, with the subsequent modifications, in the Commercial Dictionary, article Tariff.

5. Duties on the Coinage of Gold and Silver.— For an account of the incidence and effect of these duties, the reader is referred to the article Μονey in this Encyclopaedia, cap. Seignorage.

6. Stamp and Legacy Buries Stamp-duties are laid on the paper or parchment on which certain deeds, contracts, legal proceedings, receipts, acquittances, &c. are written. They derive their name from the paper being impressed with a public stamp, stating the amount of the duty. Their ultimate incidence varies according to the nature of the deed or writing for which it is necessary to use stamped paper. Duties on the sale of land, or on the paper used in its conveyance from one party to another, commonly fall on the seller. This arises, as Dr Smith has observed, from the circumstance of “the seller being almost always under the necessity of selling, which forces him to take such a price as he can get. The buyer is scarce ever under the necessity of buying; he will, therefore, only give such a price as he likes. He considers what the land will cost him in tax and price together. The more he is obliged to pay in the way of tax, the less he will be disposed to give in the way of price. Such taxes, therefore, fall almost always upon a necessitous person, and must, therefore, be frequently very cruel and oppressive.” (P. 389.) It is obvious that the same reasoning must hold in the case of the duties charge-able on the granting of mortgages; and that they will commonly fall on the borrower or poorer party.

This, however, is not the only objection to duties on the transfer of property. M. Say and Mr Ricardo have observed that their tendency is to prevent its coming into the hands of those who would use it most advantageously. Every facility should be given to the conveyance and exchange of all kinds of property, inasmuch as that is the most likely means to make capital find its way into the hands of those who will employ it with the best effect in increasing the produce of the country. “Why,” asks M. Say, “does an individual wish to sell his land? it is because he has another employment in view in which his funds will be more productive. Why does another wish to purchase this same land? it is to employ a capital which brings him too little, which was unemployed, or the use of which he thinks susceptible of improvement. This exchange will increase the general income, since it increases the income of these parties. But if the charges are so exorbitant as to prevent the exchange, they are an obstacle to this increase of the general income.”^[16. Ricardo, Principles, &c. p. 167. 3d ed.; and Say, Traite d’Economic Politique, tome ii. p. 351. ]

Taxes on law proceedings fall upon the suitors; and consequently lay obstructions in the way of an injured party seeking redress in a court of justice. The impolicy and injustice of such taxes were ably exposed by Bentham, in his Protest against Law Taxes.

Stamp-duties on the voluntary sale of commodities fall, like other taxes on them, wholly on the consumer; for, unless such were the case, the commodities would not be ottered for sale subsequently to the imposition of the duties. Thus, the duties on cards and dice, on advertisements, newspapers, &c. are all paid by those who use them. Such, too, is the case with the duties payable on licenses to retail any species of goods, or to exercise any profession. The taxed party adds as much to the price of the articles in which he deals, or of the services which he performs, as is sufficient to indemnify him for the tax.

Stamp-duties were first levied in Holland. Most of the accustomed methods of taxation having been resorted to, the republic, in order to provide additional funds for carrying on her contest with the Spanish monarchy, offered a considerable reward to any one who should devise the best new tax. Among many other taxes, that of the vectigal chartee, or stamp-duty, was suggested; and having been approved of, it was introduced by an ordinance issued in 1624, setting forth its necessity, and the benefits which it was supposed would result from its imposition.^[17. ♦ Beckman’s History of Inventions, vol. i. p. 479, Eng. Trona. ] Since that period, stamp-duties have become almost universal, and now form a very prominent branch of the revenue of almost every country; affording a striking example of the justice of Smith’s caustic remark, that “there is no art which one government sooner learns of another than that of draining money from the pockets of the people.” (P. 389.)

Stamp-duties were introduced into England in 1671, by a statute entitled “An act for laying impositions on proceedings at law.” The duties were at first granted for only [7:21:117]nine years, and were afterwards continued for three years more, when they were allowed to expire. They were again revived in 1693, and have since been gradually and greatly increased.

Legacy Duties, or duties on the transfer of property from the dead to the living, are now a very common species of tax. The vicesima hereditatum, or twentieth penny of inheritances, imposed by Augustus on the Romans, is the earliest example of a tax on successions. Dion Cassius (lib. lv.) informs us, that this duty was laid on all successions, legacies, and donations in case of death, except upon those to the nearest relations and to the poor. Pliny has given some of the reasons for this exception; in speaking of the vicesima, he calls it tributum tolerabile et facile haeredibus duntaxat extrancis, domesticis grave. And a little after he adds, Itaque illis (that is strangers) irrogatum, his (that is near relations) remissum, videlicet, quod manifestum erat, quanto cum dolore lαruri, seu potius non laturi homines essent, distringi aliquid et abradi bonis, quoe sanguine, gentilitate, sacrorum denique societate meruissent, quaque nunquam ut aliena et speranda, sed ut sua semperque possessa, ac deinceps proximo cuique transmittenda, cepissent. (Panegyricus, cap. 37.) In addition to these cogent reasons for exempting the successions of near relations from the vicesima, it may be observed, that the death of a father is seldom attended with any increase, and frequently with a considerable diminution, of revenue to such of his children as live in the same house with him; and when this is the case, the burdening of his inheritance with a tax must plainly be a very galling and cruel aggravation of their loss. But if taxes on successions be always paid with the greatest reluctance by the children and immediate relations of the deceased, it is quite otherwise when they fall to distant relations or strangers. Those on whom an unexpected or remote inheritance devolves, are glad to accept it on any condition; and uniformly pay such moderate duties as may be laid on it with greater good will than any other impost whatever.

In Great Britain, a duty of one per cent. is laid on all successions devolving either to the children, or to any lineal descendant of the children, of the deceased, or to his father or mother, or to any of his lineal ancestors; a duty of three per cent. is charged on successions devolving to brothers and sisters; of four per cent. on those devolving to cousins; and of ten per cent. on those devolving to strangers. Exclusive of this, a farther duty, varying according to the amount of the property left by the deceased, is also charged on the probates of all wills, without regard to the propinquity of the successors. This duty amounts, at present, to L.11 on a property worth from L.450 to L.600; to L.22 on a property worth from L.800 to L.1000; and to L.180 on a property worth from L.8000 to L.10,000, increasing according to the farther increase of the property. This tax presses more severely on lineal successors, and is more objected to by them, than the legacy duty.

The great objection to taxes on successions, or on the transfer of property from the dead to the living, consists in the circumstance of their falling wholly on capital, without occasioning any effort to replace it, either by increased exertion or economy. If a legacy of L.1000 be subject to a tax of L.100, the legatee considers his legacy as only L.900, and feels no particular inclination to save the L.100 from his expenditure; whereas, had he received the whole L.1000, and been required to pay L.100 in taxes on income or expenditure, the desire to preserve his capital unimpaired would have prompted him to endeavour to defray the tax by increased industry and economy. The real advantage of the legacy duties consists in the facility with which they are collected; for by tending directly and necessarily to diminish capital, they arc, in most other respects, extremely injurious.

7. Postage of Letters.— The conveyance of letters by post has, in almost all countries, been conducted by the agents of government; and it is one of the few industrious undertakings which appear to be better managed by them than they could be by private individuals. This species of conveyance was originally established and kept up by the Roman emperors for the safe, regular, and speedy transmission of the public despatches to the most remote parts of their dominions; and such was also the purpose for which posts were first established in modern Europe by Louis XI. Subsequently, however, private individuals were allowed to avail themselves of this institution for the conveyance of their letters; and governments, by imposing higher duties, or rates of postage, on the letters and packages sent through the post-office, than are sufficient to defray the expense of the establishment, have rendered it productive of a considerable revenue.^[18. Bergier, Histoire des Grands Chemins de l’Empire Remain, tom. i. p. 199. ] Nor, while the rates of postage are confined within reasonable limits, is there perhaps a more eligible species of tax. The English post-office was placed on nearly its present footing in 1649, by the exertions of Mr Edmund Prideaux, attorney-general to the Commonwealth. (Blackstone’s commentaries, i. p. 321.)^[19. A great change has been effected in the course of the present year (1840) in the postage of letters. Formerly they were charged at rates varying with the distance, but so that, at an average, the postage amounted to about 7d. or 7½. for a single letter. But the fact that the post-office revenue had continued nearly stationary during the twenty years ending with 1838, notwithstanding the vast increase in that period of population and of the intercourse between the diderent parts of the empire, was a conclusive proof that the rates of postage had been carried to a vicious excess; and that in the arithmetic of the post-office, as well as of the customs, two and two, instead of always making four, sometimes make only one. The effectual reduction of these rates was therefore urgently required, not only because of the importance to a commercial and manufacturing community, of having the charge for the conveyance of correspondence fixed at a moderate amount, but because it was all but certain that moderate rates of postage would be more productive of revenue. It did not however follow, that because an average charge of 7d. or 7½d each, on all letters conveyed by post, was very decidedly too much, that an invariable charge of ld., whether the letter were conveyed one mile or 1000 miles, was the precise limit that should be adopted. This was to rush from one extreme to another, and to endanger a considerable amount of revenue without any equivalent advantage. It must, no doubt, be admitted that the proposal for a uniform penny rate of postage had many recommendations in its favour. Being calculated at once to obviate trouble and save expense, it could not fail to be acceptable (what reduction of taxation is not?) to a large portion of the public, particularly to persons engaged in business. We believe, however, that the scheme was more indebted for its popularity to the oppressiveness of the old rates of postage than to any intrinsic merits of its own. Had these been reduced four or five years previously to a reasonable amount; that is, bad letters of 1 ox. weight coming from Scotland or Ireland to London been reduced to 6d., and other letters in proportion, and mercantile circulars been allowed to pass under covers open at the ends at ld. or 2d. each, we venture to say that the clamour for a uniform rate of penny postage would not have made any way. But in this, as usually happens on similar occasions, those who delay to make reasonable and necessary concessions at the outset, are in the end compelled to concede a great deal more than would at first have been satisfactory. This, at all events, has been eminently true in the present instance. The clamour for a uniform penny rate became too powerful to be resisted; and parliament, whether it were so inclined or not. was obliged to lend its sanction to the measure. And under the provisions of the act 2 and 3 Victoria, cap. 52, it has been enacted that all inland letters, without regard to the number of enclosures, or the distance conveyed, provided they be paid when posted or despatched, shall, if not exceeding/ox. weight, be charged 1d.; 1 oz. 2d.; 2 ox. 4d.; 3 oz. 6d.; and so on; 2d. being added for every additional ounce up to 16 ox., beyond which, with the following exceptions, no packet, whether subject to postage or not, is received :— 1. Parliamentary petitions and addresses to her Majesty. 2. Parliamentary proceedings. 3. Letters and packets addressed to or received from places beyond sea. 4. Letters and packets to and from public departments, and to and from public officers that formerly franked by virtue of their offices. 5. Deeds if sent open, or in covers open at the sides. They may be tied with string and sealed, in order to prevent inspection of the contents; but they must be open at the sides, that it may be seen that they are entitled to the privilege. With these exceptions, all packets above the weight of 16 or. will be immediately forwarded to the Dead-Letter Office. But all letters not paid when they are posted or despatched are charged double the above rates. All parliamentary and official franking has been put an end to; but members of either house of parliament are entitled to receive petitions to parliament free of charge, provided such petitions be sent in covers open at the ends, and dp not exceed 6 oz. weight. To facilitate the working of the plan, envelopes and stamps for single, double, &c. letters, are furnished by the post-office, and have been widely distributed. Such are the more prominent features of the new system; and none can deny that it has the recommendations of simplicity and cheapness in its favour, and that it will greatly facilitate correspondence. But it may nevertheless be doubted whether its adoption was expedient. It is certainly very convenient for merchants, bankers, middlemen, and retail dealers to get letters for 1d. that previously cost them 7d. or 7½d.; but their satisfaction is not the only thing to be attended to in forming a fair estimate of the measure. The public exigencies require that a sum of above fifty millions a year should be raised, one way or other; and so long as we are pressed by an unreasoning necessity of this sort, it is not much to say in favour of the repeal or diminution of any tax, that those on whom it fell with the greatest severity are delighted with the reduction. Sugar has in England become a necessary of life; and its consumption, to say the least of it, is quite as indispensable to the bulk of the people, and especially to the labouring classes, as the writing of letters. But would it, therefore, be a wise measure to repeal the duty on sugar, or to reduce it to 1s. a cwt.? It has been alleged, indeed, that taxes on the transmission of letters are objectionable on principle, and should therefore be repealed, independently altogether of financial considerations. But it is easier to make an allegation of this sort than to prove it. All taxes, however imposed, if they be carried (as was the case with the old rates of postage) beyond their proper limits, are objectionable; but provided these be not exceeded, we have yet to learn why a tax on a letter should be more objectionable than a tax on the paper on which it is written, on the food of the writer, or on fifty other things. The following statement of the probable results of the new system was drawn up before it was commenced. Perhaps it will turn out not to be very wide of the mark. The total gross receipt of the post-office revenue of the united kingdom, deducting overcharges and returned letters, amounted, in 1837, to L.2,339,739: the expenses of the establishment for the same year amounted to L.681,259, leaving a nett revenue of L.1,658,480. It is almost needless to say, that there is no probability whatever that the expenses of the post-office will be lessened by the rate of postage being reduced to Id. On the contrary, it is all but certain, from the greatly increased number of letters, that these expenses will be very materially increased. Supposing, however, that the post-office expenses remain constant, it will require the enormous number of 163,502,160 penny letters annually to pass through the post-office to defray the cost of the establishment; and no fewer than 561,537,360 such letters would be required to prevent any loss of revenue. But though the number of letters passing through the post-office under the penny rate may be fairly expected to exceed the first of these amounts, it is probable that a pretty long period will elapse before it comes up to half the second. Taking the return published by the Postage Committee, of the number of letters passing through the post-office in the week ending with the 22d of January 1838, for a basis, it appears that in the course of a year the [table] Now the question is, what will be the annual increase in the number of letters sent by post, under the new or penny rate? All answers to this question must, of course, be nearly hypothetical; and the following is precisely of this description [table] Which, at 1d. per letter, would produce a gross revenue of L.1,112,500; from which, deducting L.680,000 for expenses, there remains a nett revenue of L.432,000, being more than L.1,200,000 under its late amount. But it is material to observe, that the falling off in the revenue will not be so great as this, inasmuch as a very considerable number of letters exceed/oz. weight. The facility, under the new system, of transmitting small parcels by post, instead of, as formerly, by mail, has made great numbers of them be so conveyed; and their postage will in so far contribute to increase the amount of revenue. It appears from the Parliamentary Papers, No. 129, session 1840, that the total number of letters passing through the post-office in the united kingdom during the week ending the 24th of November 1839, when the old system was in force, was 1,585,973; and that the number passing through the post-office in the week ending the 23d of February 1840, under the new system, was 3,199,637, being an increase of about double. But, as already stated, the new system has been too recently introduced to allow of its being subjected to the test of experience. It may also be certainly anticipated, whatever be the amount of the post-office revenue under the new system at the outset, that it will increase with the rapidly increasing commerce, wealth, education, and population of the country. But that does not show that the new plan has any peculiar merit; the revenue would have increased under any reasonably well-contrived system. All taxes on articles in general use are sure, provided they be not excessive, to increase with every increase of population and wealth. The abolition of franking is a very great improvement. Franked letters were generally addressed to those who could best afford to pay the expense of postage, and who thus escaped a burden that fell with its full weight on their less opulent and less known neighbours. ] ’ [7:21:118]The limits within which this article must be confined will not allow us to inquire at greater length into the incidence of taxes on commodities. We shall therefore proceed briefly to investigate their capacity to produce a revenue.

Sect. III.— Circumstances which determine the extent to which Taxes should be laid on Commodities—Causes of Smuggling—Means by which it may be prevented.

The capacity of a tax on a commodity to raise a revenue depends, first, on the nature and extent of the demand for the commodity; and, second, on the facility with which it may be prevented from being smuggled. Every tax, by raising the price of the commodity on which it is laid, has a tendency to bring it within the command of a smaller number of purchasers, and to lessen its consumption. An individual who might be able and disposed to pay a duty of 1s. a bottle on wine, might neither have the means nor the inclination to pay 2s. or 3s.; and instead of being augmented, the revenue might be diminished by any such increase of duty. And hence, whenever the duties on commodities are raised beyond a certain limit—a limit, however, [7:21:119]which it is impossible to define, and which must necessarily vary according to the nature of the commodities on which duties are laid, and the varying tastes and circumstances of society—their effect is to depress consumption to such an extent, as to render them less productive than if they were lower.

Variations in the amount of the duties affecting commodities have exactly the same effect on their price, and consequently on their consumption, as corresponding variations in the cost of their production. But it is clear that any reduction in the price of commodities, whose natural cost is very considerable, and which can, therefore, be used only by the rich, will not have so powerful an effect in increasing consumption, as if a corresponding reduction were made from the price of cheaply-produced commodities in general demand. A fall of fifty per cent. in the price of coaches would not add greatly to the demand for them; for, notwithstanding this reduction, they would still be luxuries, which none but the rich could afford to use; whereas a fall of fifty per cent. in the price of spirits, beer, tea, sugar, or any article in general request, would extend the demand for it in a much greater ratio. The reason is, that the middle and poorer classes form by far the most numerous portion of society; and as such commodities are even now partially used by them, a fall of fifty per cent. in their price would bring them fully within their command, and would thereby add prodigiously to their consumption. The truth of this observation is strikingly exemplified in the case of cotton goods. At the accession of George III. in 1760, the price of cottons, owing to the difficulty of their production, was extremely high, and the value of the cotton goods annually brought to market did not exceed L.200,000. But, thanks to the genius and inventions of Hargreaves, Watt, Arkwright, Crompton, and others, the price of cottons has been so far sunk as to bring them within reach of the poorest individuals; and yet such has been the vast increase of demand, that, notwithstanding this reduction of price, the value of tire cottons annually manufactured in Great Britain, and either disposed of at home or sent abroad, amounts, according to the lowest estimates, to the amazing sum of Thirty-four Millions! It is obvious, however, that if cottons had been loaded with high duties, and if that reduction in their price which has been brought about by the improvement of machinery, had been brought about by a reduction of the duties affecting them, the effect would have been the same. The demand would have equally increased; and the greater consumption of low-taxed articles would have rendered the reduced duties more productive than the higher. Similar effects have uniformly followed from similar causes; low duties on commodities in general demand being invariably found to be more productive than when they are carried to a greater height, and more productive than high duties on commodities used only by the rich.

Besides diminishing the revenue by diminishing consumption, oppressively high duties tend to diminish it by encouraging and promoting the destructive trade of smuggling. The risk of being detected in the smuggling of commodities, under any system of fiscal regulations, may always be valued at a certain rate; and whenever the duties exceed this rate, smuggling will be practised. Now there are plainly but two ways of checking this nefarious practice; either the temptation to smuggle must be diminished by lowering the duties, or the difficulties in the way of smuggling must be increased. The first is obviously the most natural and efficient mode of effecting the object in view; but the second has been most generally resorted to. In the great majority of cases, governments have attempted to suppress smuggling, without reducing the duties, by establishing a more vigilant system of collection, and by increasing the number and severity of the penalties affecting the smuggler. As might have been expected, these attempts have, for the most part, proved signally unsuccessful. And it has been almost invariably found, that no vigilance on the part of the revenue officers, and no severity of punishment, can prevent the smuggling of commodities loaded with oppressive duties. The smuggler is generally a popular character; and though we have no desire to become the apologists of those who endeavour to defraud the revenue, and to injure the fair trader, it is idle to expect that the bulk of society should regard those who furnish them with cheap tea, gin, whisky, brandy, &c., as guilty of any very heinous offence.

“To pretend,” says Dr Smith, “to have any scruple about buying smuggled goods, though a manifest encouragement to the violation of the revenue laws, and to the perjury which almost always attends it, would, in most countries, be regarded as one of those pedantic pieces of hypocrisy, which, instead of gaining credit with any body, seems only to expose the person who affects to practise them, to the suspicion of being a greater knave than most of his neighbours. By this indulgence of the public, the smuggler is often encouraged to continue a trade, which he is thus taught to consider as in some measure innocent; and when the severity of the revenue laws is ready to fall upon him, he is frequently disposed to defend with violence what he has been accustomed to regard as his just property; and from being at first perhaps rather imprudent than criminal, he at last too often becomes one of the hardiest and most determined violators of the laws of society.” (P. 407. See also Montesquieu, Esprit des Loix, liv. xiii. cap. 8.)

To create, by means of high duties, an overwhelming temptation to indulge in crime, and then to punish men for indulging in it, is a proceeding completely subversive of every principle of justice. It revolts the natural feelings of the people, and makes them take an interest in the worst characters—for such smugglers generally are—espouse their cause, and avenge their wrongs. A punishment not proportioned to the offence, and which does not carry the sanction of public opinion along with it, can never be productive of any good effect. The true way to suppress smuggling is to render it unprofitable; to diminish the temptation to engage in it; and this is not to be done by surrounding the coasts with cordons of troops, multiplying oaths and penalties, and making the country the theatre of ferocious and bloody contests in the field, and of perjury and chicanery in the courts of law, but simply by reducing the duties on smuggled commodities. We must seek in this, and in this only, for an effectual check to smuggling. Whenever the profits of the fair trader become nearly equal to those of the smuggler, the latter is forced to abandon his hazardous profession. But so long as oppressively high duties are kept up, or, which is really the same thing, so long as a high bounty is held out to encourage the adventurous, the needy, and the profligate, to enter on this career, we may be assured that an army of excise officers, backed by the utmost severity of the revenue laws, will be insufficient to hinder them. The truth is, that the too great severity of these laws prevents their execution. “It stimulates the trader to corrupt the officer to conceal a fraud; and it influences the officer to overlook what he would otherwise discover.” (Hamilton on the Principles of Taxation, p. 244.)

Heavy duties on any description of commodities will occasion smuggling; but it is chiefly caused by their being laid on commodities in general demand, whose natural or necessary price is not very considerable. It is commonly said, when a proposal is made for laying a heavy duty on a low-priced article, that its lowness of price fits it to bear such a duty, and that, notwithstanding its imposition, it may still be brought to market at a sufficiently moderate rate.
[7:21:120]

But the encouragement to smuggling depends more on the proportion which the duty bears to the price of the commodity, than on the circumstance of the duty being absolutely high or low. To illustrate this principle, let us suppose, that a taxed commodity, as soap, costs, exclusively of duty, tenpence a pound. If a duty of a penny per lib. were laid on it, the inducement to smuggle would be equal to ten per cent. of the value of the article; and if the duty were twopence, the inducement would be twenty per cent., and so on. Now let us suppose that the cost of producing the soap, or its natural price, falls to fivepence: a duty of a penny per lib. would then make an inducement to smuggle of twenty per cent. of its value, and a duty of twopence would make an inducement of no less than forty per cent. And hence it is obvious, that, in order to prevent smuggling, a system should be adopted, precisely the reverse of that which is generally followed in the imposition of taxes. Instead of making duties vary inversely as the price of commodities, that is, instead of raising them when the cost of producing the articles on which they are laid is diminished, and reducing them when it is increased, they should be made to vary directly as this cost,—rising when it rises, and falling when it falls. Disproportionally heavy taxes are the great cause of smuggling; and they have the further and most injurious effect of preventing its being corrected by its natural and proper punishment, the confiscation of the commodities. Recourse is, in consequence, had to extraordinary pains and penalties, and all proportion of punishment being done away, “men who,” as Montesquieu observes, “can hardly be considered as culpable, must be punished as atrocious criminals.” (Esprit des Loix, liv. xiii. cap. 8.)

Certain commodities, from their greater bulk, from their susceptibility of being impressed with a permanent stamp, or from any other cause, are less liable to be smuggled than others, and may therefore be loaded with comparatively high duties. But as a general rule, it cannot be doubted, that, in order to prevent fraud, the duties should always be proportioned to the cost of the articles on which they are laid.

Sect. IV.— comparative Productiveness of High and Low Taxes.

The arguments adduced in the foregoing section are sufficient to establish the superior productiveness of moderate taxes. But the subject deserves to be treated at greater length; and as the history of taxation, both in this and other countries, furnishes numerous, conclusive, and well-established proofs of the same principle, we shall take this opportunity to bring one or two of them under the notice of our readers. We shall class them under two different heads: the first consisting of instances in which a reduction of duty has been followed by an increase of revenue; and the second, of instances in which an increase of duties has been followed by a diminution of revenue.

1. The reductions made in the duties on tea in 1745 and 1784, strikingly evince the superior productiveness of low duties on articles in general demand. Previously to 1745, the excise duty of four shillings a pound on tea yielded, at an average, about L.150,000 a year; showing, had there been no smuggling or adulteration, that the consumption was equal to about 750,000 pounds. But it was well known that smuggling was then carried to a great height, and that the real was much greater than the apparent consumption of tea. To put a stop to this clandestine importation, a bill was introduced into parliament in 1745, in pursuance of the recommendation of a committee of the House of Commons, and passed into a law, by which the excise duty of four shillings was reduced to one shilling, and twenty-five per cent. ad valorem. This measure was signally successful. In 1746, the year immediately subsequent to the reduction, the sales of tea for home consumption amounted to above two millions of pounds weight, and the revenue was increased to L.243,309. But to exhibit the effects of this wise and salutary measure in a still clearer point of view, we subjoin an account of the nett produce of the tea duties from 1743 to 1748 both inclusive.

In 1743 it amounted to L.15l,959

1744 147,065

1745 145,630

1746 (duties reduced) 243,309

1747 257,937

1748 303,545.^[20. Hamilton’s Principles of Taxation, Appendix, No. 19; and Postletbwaite’s History of the Revenue, p. 293. ]

But notwithstanding this unanswerable demonstration of the superior productiveness of low duties, they were again increased in 1748; and fluctuated, between that epoch and 1784, from 64 to 119 per cent. ad valorem. The effects which followed this inordinate extension of the duties are equally instructive with those which followed their reduction. The revenue was not increased in any thing like a corresponding proportion; and as the use of tea had become general, smuggling was carried to an infinitely greater extent than at any former period. In the nine years preceding 1780, above 118 millions of pounds weight of tea were exported from China to Europe in ships belonging to the continent, and about fifty millions of pounds in snips belonging to England. But from the best information attainable, it appears that the real consumption was almost exactly the reverse of the quantities imported; and that, while the consumption of the British dominions amounted to above thirteen millions of pounds a year, the consumption of the continent did not exceed five and a half millions. If this statement be nearly correct, it follows that an annual supply of about eight millions of pounds must have been clandestinely imported into this country, in defiance of the revenue officers. But this was not the worst effect of the high duties; for many of the retail dealers who purchased tea at the East India Company’s sales, being in a great measure beaten out of the market, were, in order to put themselves in a condition to stand the competition of the smugglers, tempted to adulterate their teas, by mixing them with sloe and ash leaves.^[21. Macpherson’s Commerce with India, p. 208. Milburn’s Oriental Commerce, vol. ii. p. 540. ] At length, in 1784, ministers, after having in vain tried every other resource for the suppression of smuggling, resolved to follow the precedent of 1745, and reduced the duty on tea from 119 to 12.½ per cent. This measure was as successful as the former. Smuggling and the practice of adulteration were immediately put an end to. The following statement shows that the quantity of tea sold by the East India Company was about trebled in the course of the two years immediately following the reduction.

In 1781, the quantity of tea sold at the East India Company’s sales amounted to 5,023,419 pounds.

1782 6,283,664 ...

1783 5,857,883 ...

1784 (duties reduced) 10,148,257 ...

1785 16,307,433 ...

1786 15,093,952 ...

1787 16,692,426^[22. Macpherson’s Commerce with India, p. 416. ]...

While the quantity of tea sold at the Company’s sales was thus rapidly augmenting in consequence of the reduction of the duty, the quantity of tea imported into the continent[7:21:121] from China, which had, in the year 1784, amounted to 19,027,300 pounds, declined with still greater rapidity, and, in 1791, was reduced to only 2,291,500 pounds.^[23. Macpherson’s Commerce with India, p. 210. ]

The duties on tea, at an average of the five or six years preceding 1784, produced about L.700,000 a year. And, at the same time that they were reduced to twelve and a half per cent., an additional duty, estimated to produce L.600,000, was laid on windows, as a commutation tax, to compensate for the deficiency which it was supposed would take place in the revenue formerly derived from tea. But instead of the duties falling off in the proportion of 119 to 12½, or from L.700,000 to L.73,000, they only fell off, in consequence of the increased consumption, in the proportion of about two to one, or from L.700,000 to L.340,000. The commutation act has been always regarded as one of the most successful financial measures adopted in the course of Mr Pitt’s administration. The plan was generally understood at the time to have been suggested by Mr Richardson, accountant-general of the East India Company. But the popularity of the measure was so great as to induce several other individuals to claim this honour, and even to occasion some hot disputes on the subject in the House of Commons. In point of fact, however, the merit of having first suggested the plan neither belonged to Mr Richardson, nor to any of those who then claimed it; and such of our readers as will take the trouble to look into a pamphlet of Sir Matthew Decker (Serious considerations on the present High Duties'), published in 1743, will find that the measure adopted in 1784 had been strenuously recommended forty years before.

But the principle of the commutation act, and the striking advantage that had resulted from the reduction of the duty, were soon lost sight of. In 1795, the duty was increased to twenty-five per cent.; and after successive augmentations in 1797, 1798, 1800, and 1803, it was raised, in 1806, to ninety-six per cent. ad valorem, at which it continued till 1819, when it was raised to 100 per cent. on teas above two shillings per lib. The influence of these duties on consumption may be seen in the Commercial Dictionary (article Teas) ; for as their influence was mixed up with that of the East India Company’s monopoly, it would encroach too much on our limits to exhibit in this place the operation of the duties only.

The narrow and contracted policy on which ministers have too frequently acted, puts it out of our power to refer to many such conclusive instances as the reduction of the tea duties in 1745 and 1784, in proof of the superior productiveness of diminished taxation. There are, however, some others which deserve to be pointed out. In 1742, the high prohibitory duties upon spirituous liquors, and upon licenses for retailing the same, were abolished, and such moderate duties imposed, to commence after Ladyday 1743, as were expected to increase the revenue, by increasing the legal consumption of spirits. This measure was vehemently opposed by the bishops; but their opposition was ineffectual, and the increase of the duties, and diminution of smuggling which followed, proved that the measure was alike advantageous to the revenue and to the morals of the people. (History of our Debts and Taxes, part iv. p. 110.)

Previously to 1732, the duty on coffee amounted to two shillings a pound; but an act was then passed, in compliance with the solicitations of the West India planters, reducing the duty to one shilling and sixpence a pound; at which it stood for many years, producing, at an average, about L.10,000 a year. In consequence, however, of the preva lence of smuggling, caused by the too great magnitude of the duty, the revenue declined, in 1783, to L.2869.10s. 10½d. And it having been found impossible otherwise to check the practice of clandestine importation, the duty was reduced, in 1784, to sixpence. The consequences of this wise and salutary measure were most beneficial. Instead of being reduced, the revenue was immediately raised to near three times its previous amount, or to L.7200.15s. 9d., showing that the consumption of legally imported coffee must have increased in about a ninefold proportion; a striking and conclusive proof, as Mr Bryan Edwards has observed, of the effect of heavy taxation in defeating its own object. (History of the West Indies, vol. ii. p. 340, 8vo ed.)

The history of the coffee trade abounds with similar and even more striking examples of the superior productiveness of low duties. In 1807, the duty was one shilling and eightpence a pound; and the quantity entered for home consumption amounted to 1,170,164 pounds, yielding a revenue of L.161,245. 11s. 4d. In 1808, the duty was reduced from one shilling and eightpence to sevenpence; and in 1809 there were no fewer than 9,251,847 pounds entered for home consumption, yielding, notwithstanding the reduction of duty, a revenue of L.245,856. 8s. 4d. The duty having been raised in 1819 from sevenpence to one shilling a pound, the quantity entered for home consumption in 1824 was 7,993,041 pounds, yielding a revenue of L.407,544.4s. 3d. In 1824, however, the duty being again reduced from one shilling to sixpence, the quantity entered for home consumption in 1825 was 10,766,112 pounds. In 1830 it had increased to 21,840,520 pounds, producing a nett revenue of L.558,544; and in 1838 the consumption amounted to 25,765,673 pounds, and the revenue to L.685,082. And it is to be observed, that this extraordinary increase in the consumption of coffee has taken place, not only without any diminution, but with a very material increase, in the consumption of tea.

The history of other countries abounds with equally conclusive examples of the superior productiveness of moderate duties. In 1775, M. Turgot deducted a half from the customs and other duties chargeable on the fish sold in the Paris market; but, notwithstanding this reduction, the amount of the duties collected was not diminished. The demand for fish must therefore have been doubled, in consequence of the inhabitants being enabled to supply themselves, at a comparatively cheap rate, with a nutritious and agreeable food.^[24. Say, Traité d’Economic Politique, tome ii. p. 339. Lord Kames, in his Sketches of the History of Man, states that these duties amounted to forty-eight per cent. ad valorem. Vol. ii. p. 406, edit, 1788. ]

In 1813, all sugar imported into the French empire paid a duty of one franc sixty cent. the livre or pound. The quantity imported that year amounted to about fourteen millions of pounds, which, as France, and the countries then incorporated with her, contained about forty-two millions of inhabitants, gives the third part of a pound weight to each. In 1814, this exorbitant duty was reduced to about a fifth part, or to thirty cent. the pound; and though the population of France had then been reduced from forty-two to about twenty-eight millions, the average annual importations of 1814 and 1815 amounted to forty-four millions of pounds, being upwards of 1½ lib. to each individual, or about five times as much as the consumption had amounted to under the high duty. In consequence of this increase of consumption, the low duty yielded very nearly as large a revenue as the high duties. (Richesse des Nations, par Garnier, V. p. 304, 2de éd.)

Ustariz gives a variety of instructive details respecting the disastrous effects which certain taxes have had on industry[7:21:122] in Spain, and of the advantages resulting from the repeal and modification of others. We shall give a single example. Valencia, he tells us, though barren of grain and flocks, and not equal in extent to two thirds of Aragon, paid a much larger revenue to the royal treasury. This, he says, was owing to the comparatively flourishing state of commerce and manufactures in Valencia; and he then adds,— “This increase and improvement in manufactures and commerce is ascribed to the equitable and kind treatment the weavers receive in that province, and to his majesty’s goodness in reducing the excessive taxes which were charged upon flesh meat and other provisions; and his taking off wholly that which was laid on bread in ancient times; as also the imposts known by the name of ancient duties and generalities. These duties were partly replaced by others, but in such a manner that they were rendered much lighter, the people in general eased, and the royal revenue improved.”^[25. Theory and Practice of Commerce, vol. ii. p. 310. Eng. Trans. ]

2. But the superior productiveness of low duties on articles in general demand may be equally shown from the consequences of the attempts to increase them beyond their proper limits. The history of the wine duties is, in this respect, highly important. During the three years ending with 1792, when the duty on French wines was 3s. 9d. and on Portuguese 2s. 6d. per wine gallon, the consumption in Great Britain amounted, at an average, to 7,410,947 gallons a year, producing about L.900,000 of revenue. It is probable, had the increase taken place gradually, that these duties might have been doubled without any material diminution of consumption. But in 1795 and 1796 they were raised to 8s. 6d. per gallon on French, and to 5s. 8¼d. per gallon on Portuguese and Spanish wine; and the consequence of this sudden and inordinate increase was, that the consumption fell from nearly 7,000,000 gallons in 1795, to 5,732,383 gallons in 1796, and to 3,970,901 in 1797. But this unanswerable demonstration of the ruinous effect of heavy and sudden additions to the duties did not prevent them being raised, in 1804, to 11s. 5½d. on French, and to 7s. 8d. on Portuguese and Spanish wine. They continued at this rate till 1825; and such was their influence, that, notwithstanding the vast increase of wealth and population since 1790, and the general improvement in the style of living, the total consumption of wine, during the three years ending with 1824, amounted, at an average, to only 5,248,767 gallons a year; being no less than 2,162,180 gallons under the annual consumption of the three years ending with 1792. It may therefore be truly said, making allowance for the increase of population, that the consumption of wine in Great Britain fell off more than fifty per cent. between 1790 and 1824.

Had Mr Vansittart continued in power, it is difficult to say when this system might have terminated; but no sooner had Mr Robinson (now Lord Ripon) become Chancellor of the Exchequer, than he resolved upon the effectual reduction of the wine duties. In pursuance of this wise determination, Mr Robinson took, in 1825, nearly fifty per cent. from the previously existing duties; and notwithstanding the spirit duties were at the same time reduced in a still greater degree, the consumption of wine in Great Britain has been increased from little more than 4,150,000 to nearly 7,000,000 (in 1838, 6,990,271) imperial gallons, while the loss of revenue has been but inconsiderable. We are therefore justified in affirming that this measure has been very successful, and that it is a most valuable example of the superior productiveness of low duties.

The duties, as reduced by Mr Robinson, were 7s. 3d. per imperial gallon on French wines, 4s. 10d. per do. on all other foreign wines, and 2s. 5d. on those of the Cape of

Good Hope. They continued on this footing till the equalization act (1 and 2 Will. 4. c. 30), which imposed a duty of 5s. 6d. per imperial gallon on all foreign wines, and of 2s. 9d. on those of the Cape.

There are perhaps no better objects of taxation than spirituous and fermented liquors, and none in which the injurious effects of over-taxation have been more striking and obvious. They are essentially luxuries; and while moderate duties on them are, in consequence of their being very generally used, exceedingly productive, the increase of price which they occasion has a tendency to limit their consumption by the poor, to whom, when taken in excess, they are extremely pernicious. Few governments, however, have been satisfied with the imposition of moderate duties on spirits; but, partly to increase the revenue, and partly to place them beyond the reach of the poorer classes, have almost invariably loaded them with such oppressively high duties as have entirely defeated both objects. The imposition of such duties does not take away the appetite for spirits; and as no vigilance of the officers, or severity of the laws, has been sufficient to secure a monopoly of the market to the legal distillers, the real effect of the high duties has been to throw the supply of a large portion of the demand into the hands of the illicit distiller, and to super-add the crimes and vices of the smuggler to those of the drunkard.

Nowhere, perhaps, have the injurious consequences of the excessive increase of spirit duties been more distinctly manifested than in Ireland. In proof of this, we may mention, on the authority of the Fifth Report of the Commissioners of Inquiry into the State of Irish Revenue (p. 19), that in 1811, when the duty on spirits was 2s. 6d. per gallon, duty was paid in Ireland on 6,500,361 gallons; while in 1822, when the duty was 5s. 6d., only 2,950,647 gallons were brought to the charge. The Commissioners estimated the annual consumption of spirits in Ireland at about ten millions of gallons; and as scarcely three millions paid duty, it followed that upwards of seven millions were illegally supplied; and, “taking one million of gallons as the quantity fraudulently furnished for consumption by the licensed distillers, the produce of the unlicensed stills may be estimated at six millions of gallons.” (P. 8.) It is material, too, to observe, that this extraordinary increase of smuggling took place in defiance of the utmost efforts of the revenue officers, police, and military, to prevent it; the only result of these efforts being the exasperation of the populace, and the committal of atrocities, both by them, and by those employed in the collection of the revenue, that are hardly to be matched in the annals of civil warfare. “In Ireland,” say the Commissioners, “it will appear, from the evidence annexed to this Report, that parts of the country have been absolutely disorganized, and placed in opposition not only to the civil authority, but to the military force of the government. The profits to be obtained from the evasion of the law have been such as to encourage numerous individuals to persevere in these desperate pursuits, notwithstanding the risk of property and fife with which they have been attended.” (P. 1.)

The too great height to which the duties were carried, and the injudicious mode in which they were charged and collected, produced similar effects in Scotland. The system of illicit distillation made great progress, and had the most injurious influence over the morals and industry of the people in the mountainous districts, where it was principally carried on.

To put an end to such evils, the Commissioners recommended that the duty on spirits should be reduced from 5s. 6d. to 2s. the wine gallon (2s. 4d. the imperial gallon), and [7:21:123]government wisely consented to act upon this recommendation. In 1823 the duties were accordingly reduced, and the following account, derived from official statements, shows the result.

An Account of the Quantities of British Spirits which have paid the Duties of Excise for Home consumption in Scotland and Ireland, stating the Bate of Duty paid, and also the Nett Amount of Revenue received, in each Year since 1820.
[table]

An Account of the Number of Proof Gallons of British Spirits that paid Duty in England, Scotland, and Ireland, respectively, during 1839, with the Total Number of Gallons that paid Duty in the United Kingdom, and the Total Duty, in the above Year.
[table]

This account not only shows the influence of reasonable duties in suppressing fraud and increasing the revenue, but it also shows the fallacy of the often repeated statements as to the increase of drunkenness. The consumption of spirits in Ireland in 1839 was under eleven millions of gallons; and as the Commissioners estimated it at ten millions of gallons in 1822, it follows, allowing for the increase of population, and for the total suppression of smuggling, that the consumption, instead of being increased, has been materially diminished. The same thing has also taken place in Scotland and England.

In France, previously to the Revolution, the average annual consumption of salt, in the provinces subjected to the grande gabelle, or high duty on salt, was estimated by M. Necker, who had the best means of coming to a correct conclusion, at 9 1 / 6 lib. to each individual; and at 18 libs. in the pays redimies, or provinces that had purchased an exemption from the greater part of this hateful tax. {Administration des Finances, tom. ii. p. 12.) It is evident, from this well-authenticated statement, that a very great reduction might have been made from the duty paid on the salt consumed in the heavily taxed provinces, without occasioning any diminution of revenue; while, besides directly increasing the comforts of the people, it would have relieved government from the necessity of surrounding particular provinces with cordons of troops, and would have put a stop to that smuggling of salt which occasioned the sending of between 3000 and 4000 persons every year either to prison or to the galleys. (Arthur Young’s Travels in France, vol. i. p. 598.)

Sect. V.— Method of comparing the Amount of Taxation in Different countries.

It has been usual to endeavour to ascertain the comparative weight of the public burdens of different countries by comparing them with their population. But this is obviously a most erroneous criterion. In proof of this, we may observe, that, if the amount of population in a country were a true test of its capacity to bear taxes, it would follow that Ireland, which has a population of eight millions, could afford to pay three times the amount of the taxes paid by Scotland, which has only a population of two and a half millions. So far, however, from this being the case, the revenue of Scotland is very little less than that of Ireland; and yet there is no reason for thinking that the pressure of taxation is felt more severely here than among our neighbours.

The amount of the capital belonging to different countries has been suggested as a test by which to ascertain the comparative weight of their burdens. But this would also lead to the most erroneous results; for it is plain that a small capital where profits are high, may be more productive than a large one where profits are low. The market-rate of interest, which is always proportional to the customary rate of profit, is usually about twice as great in the United States as in England. One million of capital employed in America must therefore be about as productive, that is, it must yield about as large an annual income, as two millions employed in this country. And hence it is obvious, that if taxation, as compared with the amount of capital, were the same in both countries, it would, as compared[7:21:124] with the profits or revenue derived from that capital, be about twice as heavy in England as in America.

It is not therefore by the amount either of the population or capital of a country that its capacity to bear taxes is to be determined. Taxes, as has been already seen, really consist of a portion of the incomes of individuals transferred from the public to the state; and hence, to determine whether they are higher or lower in one country than in another, it is necessary to ascertain the respective incomes of the states to be compared together, the number of their inhabitants, and the amount of their burdens. Supposing, for example, that the income of Great Britain, which has 18½ millions of inhabitants, is three hundred millions of pounds sterling, which is believed to be pretty near its actual amount, and that its taxes, including poor-rates, tithes, and public burdens of every description, amount to sixty millions, this sum deducted from the former would leave two hundred and forty millions, which would give a free income of about L.13. 11s. a year to every individual in the empire. Suppose, now, that the income of France is four hundred and twenty millions, and that the aggregate amount of her taxes, and public burdens of every description, is fifty millions; the 370 millions of remainder, when divided among a population of 33½ millions, would only leave a free income of L.10. 4s. to each. There is reason to think that these estimates are not very wide of the mark. We do not, however, give them as being correct, for in such matters it is impossible to attain to any thing like accuracy; but as illustrations of the method to be followed in comparing the burdens laid on different countries, and as showing that, in proportion to her means of paying, a country with a small population, and a large absolute amount of taxes, may be really less heavily taxed than a country with a much larger population, and a smaller absolute amount of taxes.

The taxes on tea, sugar, soap, and malt, are those which fall heaviest on necessaries, and consequently exercise the greatest influence over profits. We think we are entitled to conclude, from the preceding investigations, that a considerable reduction might be made in the amount of the duties affecting them, without occasioning any decrease, and probably even with a positive increase, of revenue. At all events, it is clear that the public interests require that every practicable effort should be made to lighten the pressure on the national resources, and to check the efflux of capital to other countries, by adding to the productive powers of industry, or, in other words, by increasing the rate of profit. And this will be most effectually done by making every possible deduction from the taxes affecting necessaries, and by ceasing to bolster up and protect any single species of industry at the expense of the rest.

Tables, illustrative of the progress of the public revenue of Great Britain, have been given in Postlethwaite’s and Sir John Sinclair’s Histories of the Revenue, Chalmers’s Comparative Estimate, the Statistical Account of the British Empire, and a variety of other publications. (c. c .)