It may then be
objected
against such a tax,
1st.
1st.
Ricardo - On The Principles of Political Economy, and Taxation
_, I should be possessed there of 125_l.
_; what then
could make me consent to give 130_l. _ for a bill which would give me
100_l. _ in Hamburgh, but that my pounds were not good pounds
sterling? --they were deteriorated, were degraded in intrinsic value
below the pounds sterling of Hamburgh, and if actually sent there, at an
expense of 5_l. _, would sell only for 100_l. _ With metallic pounds
sterling, it is not denied that my 130_l. _ would procure me 125_l. _ in
Hamburgh, but with paper pounds sterling I can only obtain 100_l. _; and
yet it is maintained that 130_l. _ in paper, is of equal value with
130_l. _ in silver or gold.
Some indeed more reasonably maintained, that 130_l. _ in paper was not of
equal value with 130_l. _ in metallic money; but they said that it was
the metallic money which had changed its value, and not the paper money.
They wished to confine the meaning of the word depreciation to an actual
fall of value, and not to a comparative difference between the value of
money, and the standard by which by law it is regulated. One hundred
pounds of English money was formerly of equal value with, and could
purchase 100_l. _ of Hamburgh money: in any other country a bill of
100_l. _ on England, or on Hamburgh, could purchase precisely the same
quantity of commodities. To obtain the same things, I was lately obliged
to give 130_l. _ English money, when Hamburgh could obtain them for
100_l. _ Hamburgh money. If English money was of the same value then as
before, Hamburgh money must have risen in value. But where is the proof
of this? How is it to be ascertained whether English money has fallen,
or Hamburgh money has risen? there is no standard by which this can be
determined. It is a plea which admits of no proof, and can neither be
positively affirmed, nor positively contradicted. The nations of the
world must have been early convinced, that there was no standard of
value in nature, to which we might unerringly refer, and therefore chose
a medium, which, on the whole appeared to them less variable than any
other commodity.
To this standard we must conform till the law is changed, and till some
other commodity is discovered, by the use of which we shall obtain a
more perfect standard, than that which we have established. While gold
is exclusively the standard in this country, money will be depreciated,
when a pound sterling is not of equal value with 5 dwts. and 3 grs. of
standard gold, and that, whether gold rises or falls in general value.
CHAPTER VII.
ON TAXES.
Taxes are a portion of the produce of the land and labour of a country,
placed at the disposal of the government; and are always ultimately
paid, either from the capital, or from the revenue of the country.
We have already shewn how the capital of a country is either fixed or
circulating, according as it is of a more or of a less durable nature.
It is difficult to define strictly, where the distinction between
circulating and fixed capital begins; for there are almost infinite
degrees in the durability of capital. The food of a country is consumed
and reproduced, at least once in every year; the clothing of the
labourer is probably not consumed and reproduced in less than two
years; whilst his house and furniture are calculated to endure for a
period of ten or twenty years.
When the annual productions of a country exceed its annual consumption,
it is said to increase its capital; when its annual consumption at least
is not replaced by its annual production, it is said to diminish its
capital. Capital may therefore be increased by an increased production,
or by a diminished consumption.
If the consumption of the government, when increased by the levy of
additional taxes, be met either by an increased production, or by a
diminished consumption on the part of the people, the taxes will fall
upon revenue, and the national capital will remain unimpaired; but if
there be no increased production or diminished consumption on the part
of the people, the taxes will necessarily fall on capital.
In proportion as the capital of a country is diminished, its productions
will be necessarily diminished; and therefore, if the same expenditure
on the part of the people and of the government continue, with a
constantly diminishing annual reproduction, the resources of the people
and the state will fall away with increasing rapidity, and distress and
ruin will follow.
Notwithstanding the immense expenditure of the English government during
the last twenty years, there can be little doubt but that the increased
production on the part of the people has more than compensated for it.
The national capital has not merely been unimpaired, it has been greatly
increased, and the annual revenue of the people, even after the payment
of their taxes, is probably greater at the present time than at any
former period of our history.
For the proof of this we might refer to the increase of population--to
the extension of agriculture--to the increase of shipping and
manufactures--to the building of docks--to the opening of numerous
canals, as well as to many other expensive undertakings; all denoting an
increase both of capital and of annual production.
There are no taxes which have not a tendency to impede accumulation,
because there are none which may not be considered as checking
production, and as causing the same effects as a bad soil or climate, a
diminution of skill or industry, a worse distribution of labour, or the
loss of some useful machinery; and although some taxes will produce
these effects in a much greater degree than others, it must be confessed
that the great evil of taxation is to be found, not so much in any
selection of its objects, as in the general amount of its effects taken
collectively.
Taxes are not necessarily taxes on capital, because they are laid on
capital; nor on income, because they are laid on income. If from my
income of 1000_l. _ per annum, I am required to pay 100_l. _, it will
really be a tax on my income, should I be content with the expenditure
of the remaining 900_l. _; but it will be a tax on capital, if I continue
to spend 1000_l. _
The capital from which my income of 1000_l. _ is derived may be of the
value of 10,000_l. _; a tax of one per cent. on such capital would be
100_l. _; but my capital would be unaffected, if after paying this tax, I
in like manner contented myself with the expenditure of 900_l. _
The desire which every man has to keep his station in life, and to
maintain his wealth at the height which it has once attained, occasions
most taxes, whether laid on capital or on income, to be paid from
income; and therefore as taxation proceeds, or as government increases
its expenditure, the annual expenditure of the people must be
diminished, unless they are enabled proportionally to increase their
capitals and income. It should be the policy of governments to encourage
a disposition to do this in the people, and never to lay such taxes as
will inevitably fall on capital; since by so doing, they impair the
funds for the maintenance of labour, and thereby diminish the future
production of the country.
In England this policy has been neglected, in taxing the probates of
wills, in the legacy duty, and in all taxes affecting the transference
of property from the dead to the living. If a legacy of 1000_l. _ be
subject to a tax of 100_l. _, the legatee considers his legacy as only
900_l. _, and feels no particular motive to save the 100_l. _ duty from
his expenditure, and thus the capital of the country is diminished; but
if he had really received 1000_l. _ and had been required to pay 100_l. _
as a tax on income, on wine, on horses, or on servants, he would
probably have diminished, or rather not increased his expenditure by
that sum, and the capital of the country would have been unimpaired.
"Taxes upon the transference of property from the dead to the living,"
says Adam Smith, "fall finally, as well as immediately, upon the persons
to whom the property is transferred. Taxes on the sale of land fall
altogether upon the seller. The seller is almost always under the
necessity of selling, and must therefore take such a price as he can
get. The buyer is scarce ever under the necessity of buying, and 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 very cruel and oppressive. " "Stamp duties,
and duties upon the registration of bonds and contracts for borrowed
money, fall altogether upon the borrower, and in fact are always paid by
him. Duties of the same kind upon law proceedings fall upon the suitors.
They reduce to both the capital value of the subject in dispute. The
more it costs to acquire any property, the less must be the neat value
of it when acquired. All taxes upon the transference of property of
every kind, so far as they diminish the capital value of that property,
tend to diminish the funds destined for the maintenance of labour. They
are all more or less unthrifty taxes, that increase the revenue of the
sovereign, which seldom maintains any but unproductive labourers, at the
expense of the capital of the people, which maintains none but
productive. "
But this is not the only objection to taxes on the transference of
property; they prevent the national capital from being distributed in
the way most beneficial to the community. For the general prosperity,
there cannot be too much facility given to the conveyance and exchange
of all kinds of property, as it is by such means that capital of every
species is likely to find its way into the hands of those who will best
employ it in increasing the productions 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 in 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. "
Those taxes however are easily collected; and this by many may be
thought to afford some compensation for their injurious effects.
CHAPTER VIII.
TAXES ON RAW PRODUCE.
Having in a former part of this work established, I hope satisfactorily,
the principle, that the price of corn is regulated by the cost of its
production on that land exclusively, or rather with that capital
exclusively, which pays no rent, it will follow that whatever may
increase the cost of production will increase the price; whatever may
reduce it, will lower the price. The necessity of cultivating poorer
land, or of obtaining a less return with a given additional capital on
land already in cultivation, will inevitably raise the exchangeable
value of raw produce. The discovery of machinery, which will enable the
cultivator to obtain his corn at a less cost of production, will
necessarily lower its exchangeable value. Any tax which may be imposed
on the cultivator, whether in the shape of land-tax, tithes, or a tax on
the produce when obtained, will increase the cost of production, and
will therefore raise the price of raw produce.
If the price of raw produce did not rise so as to compensate the
cultivator for the tax, he would naturally quit a trade where his
profits were reduced below the general level of profits: this would
occasion a diminution of supply, until the unabated demand should have
produced such a rise in the price of raw produce, as to make the
cultivation of it equally profitable with the investment of capital in
any other trade.
A rise of price is the only means by which he could pay the tax, and
continue to derive the usual and general profits from this employment of
his capital. He could not deduct the tax from his rent, and oblige his
landlord to pay it, for he pays no rent. He would not deduct it from his
profits, for there is no reason why he should continue in an employment
which yields small profits, when all other employments are yielding
greater. There can then be no question, but that he will have the power
of raising the price of raw produce by a sum equal to the tax.
A tax on raw produce would not be paid by the landlord; it would not be
paid by the farmer; but it would be paid, in an increased price, by the
consumer.
Rent, it should be remembered, is the difference between the produce
obtained by equal portions of labour and capital employed on land of the
same or different qualities. It should be remembered too, that the money
rent of land, and the corn rent of land, do not vary in the same
proportion.
In the case of a tax on raw produce, of a land tax, or tithes, the corn
rent of land will vary, while the money rent will remain as before.
If, as we have before supposed, the land in cultivation were of three
qualities, and that with an equal amount of capital,
180 qrs. of corn were obtained from land No. 1.
170 " " " from " 2.
160 " " " from " 3.
the rent of No. 1 would be 20 quarters, the difference between that of
No. 3 and No. 1; and of No. 2, 10 quarters, the difference between that
of No. 3 and No. 2; while No. 3 would pay no rent whatever.
Now if the price of corn were 4_l. _ per quarter, the money rent of No. 1
would be 80_l. _, and that of No. 2, 40_l. _
Suppose a tax of 8_s. _ per quarter to be imposed on corn; then the price
would rise to 4_l. _ 8_s. _; and if the landlords obtained the same corn
rent as before, the rent of No. 1 would be 88_l. _, and that of No. 2,
44_l. _ But they would not obtain the same corn rent; the tax would fall
heavier on No. 1 than on No. 2, and on No. 2 than on No. 3, because it
would be levied on a greater quantity of corn. It is the difficulty of
production on No. 3 which regulates price; and corn rises to 4_l. _
8_s. _, that the profits of the capital employed on No. 3 may be on a
level with the general profits of stock.
The produce and tax on the three qualities of land will be as follows:
No. 1, yielding 180 qrs. at 4_l. _ 8_s. _ per qr. £792
Deduct the value of 16. 3 or 8_s. _ per qr. on 180 qrs. 72
----- ----
Net corn produce 163. 7 Net money produce £720
----- ----
No. 2, yielding 170 qrs. at 4_l. _ 8_s. _ per qr. £748
Deduct the value of 15. 4 {qrs. at 4_l. _ 8_s. _ or 8_s. _ per}
{ qr. on 170 qrs. } 68
----- ----
Net corn produce 154. 6 Net money produce of £680
----- ----
No. 3, 160 qrs. at 4_l. _ 8_s. _ £704
Deduct the value of 14. 5 {qrs. at 4_l. _ 8_s. _ or 8_s. _ per}
{ qr. on 160 } 64
----- ----
Net corn produce 145. 5 Net money produce £640
----- ----
The money rent of No. 1 would continue to be 80_l. _, or the difference
between 640 and 720_l. _; and that of No. 2, 40_l. _, or the difference
between 640_l. _ and 680_l. _, precisely the same as before; but the corn
rent will be reduced from 20 quarters on No. 1 to 18. 2 quarters, and
that on No. 2 from 10 to 9. 1 quarters.
A tax on corn, then, would fall on the consumers of corn, and would
raise its value as compared with all other commodities, in a degree
proportioned to the tax. In proportion as raw produce entered into the
composition of other commodities, would their value also be raised,
unless the tax were countervailed by other causes. They would in fact be
indirectly taxed, and their value would rise in proportion to the tax.
A tax, however, on raw produce, and on the necessaries of the labourer,
would have another effect--it would raise wages. From the effect of the
principle of population on the increase of mankind, wages of the lowest
kind never continue much above that rate which nature and habit demand
for the support of the labourers. This class is never able to bear any
considerable portion of taxation; and, consequently, if they had to pay
8_s. _ per quarter in addition for wheat, and in some smaller proportion
for other necessaries, they would not be able to subsist on the same
wages as before, and to keep up the race of labourers. Wages would
inevitably and necessarily rise; and in proportion as they rose, profits
would fall. Government would receive a tax of 8_s. _ per quarter on all
the corn consumed in the country, a part of which would be paid directly
by the consumers of corn; the other part would be paid indirectly by
those who employed labour, and would affect profits in the same manner
as if wages had been raised from the increased demand for labour
compared with the supply, or from an increasing difficulty of obtaining
the food and necessaries required by the labourer.
In as far as the tax might affect consumers, it would be an equal tax,
but in as far as it would affect profits, it would be a partial tax; for
it would neither operate on the landlord nor on the stockholder, since
they would continue to receive, the one the same money rent, the other
the same money dividends as before. A tax on the produce of the land
then would operate as follows:
1st. It would raise the price of raw produce by a sum
equal to the tax, and would therefore fall on each
consumer in proportion to his consumption.
2dly. It would raise the wages of labour, and lower
profits.
It may then be objected against such a tax,
1st. That by raising the wages of labour, and lowering profits,
it is an unequal tax, as it affects the income of the farmer,
trader, and manufacturer, and leaves untaxed the income of the
landlord, stockholder, and others enjoying fixed incomes.
2dly. That there would be a considerable interval between
the rise in the price of corn and the rise of wages,
during which much distress would be experienced by the
labourer.
3rdly. That raising wages and lowering profits is a
discouragement to accumulation, and acts in the same way
as a natural poverty of soil.
4thly. That by raising the price of raw produce, the
prices of all commodities into which raw produce enters,
would be raised, and that therefore we should not meet
the foreign manufacture on equal terms in the general
market.
With respect to the first objection, that by raising the wages of labour
and lowering profits it acts unequally, as it affects the income of the
farmer, trader, and manufacturer, and leaves untaxed the income of the
landlord, stockholder, and others enjoying fixed incomes,--it may be
answered, that if the operation of the tax be unequal, it is for the
legislature to make it equal, by taxing directly the rent of land, and
the dividends from stock. By so doing, all the objects of an income tax
would be obtained, without the inconvenience of having recourse to the
obnoxious measure of prying into every man's concerns, and arming
commissioners with powers repugnant to the habits and feelings of a free
country.
With respect to the second objection, that there would be a considerable
interval between the rise of the price of corn and the rise of wages,
during which much distress would be experienced by the lower classes,--I
answer, that under different circumstances, wages follow the price of
raw produce with very different degrees of celerity; that in some cases
no effect whatever is produced on wages by a rise of corn; in others,
the rise of wages precedes the rise in the price of corn; again, in some
the effect is slow, and in others the interval must be very short.
Those who maintain that it is the price of necessaries which regulates
the price of labour, always allowing for the particular state of
progression in which the society, may be seem to have conceded too
readily, that a rise or fall in the price of necessaries will be very
slowly succeeded by a rise or fall of wages. A high price of provisions
may arise from very different causes, and may accordingly produce very
different effects. It may arise from
1st. A deficient supply.
2nd. From a gradually increasing demand, which may be
ultimately attended with an increased cost of production.
3dly. From a fall in the value of money.
4thly. From taxes on necessaries.
These four causes have not been sufficiently distinguished and separated
by those who have inquired into the influence of a high price of
necessaries on wages. We will examine them severally.
A bad harvest will produce a high price of provisions, and the high
price is the only means by which the consumption is compelled to conform
to the state of the supply. If all the purchasers of corn were rich,
the price might rise to any degree, but the result would remain
unaltered; the price would at last be so high, that the least rich would
be obliged to forego the use of a part of the quantity which they
usually consumed, as by diminished consumption alone, the demand could
be brought down to the limits of the supply. Under such circumstances no
policy can be more absurd, than that of forcibly regulating money wages
by the price of food, as is frequently done, by misapplication of the
poor laws. Such a measure affords no real relief to the labourer,
because its effect is to raise still higher the price of corn, and at
last he must be obliged to limit his consumption in proportion to the
limited supply. In the natural course of affairs a deficient supply from
bad seasons, without any pernicious and unwise interference, would not
be followed by a rise of wages. The raising of wages is merely nominal
to those who receive them; it increases the competition in the corn
market, and its ultimate effect is to raise the profits of the growers
and dealers in corn. The wages of labour are really regulated by the
proportion between the supply and demand of necessaries, and the supply
and demand of labour; and money is merely the medium, or measure, in
which wages are expressed. In this case then the distress of the
labourer is unavoidable, and no legislation can afford a remedy, except
by the importation of additional food.
When a high price of corn is the effect of an increasing demand, it is
always preceded by an increase of wages, for demand cannot increase,
without an increase of means in the people to pay for that which they
desire. An accumulation of capital naturally produces an increased
competition among the employers of labour, and a consequent rise in its
price. The increased wages are not immediately expended on food, but are
first made to contribute to the other enjoyments of the labourer. His
improved condition however induces, and enables him to marry, and then
the demand for food for the support of his family naturally supersedes
that of those other enjoyments on which his wages were temporarily
expended. Corn rises then because the demand for it increases, because
there are those in the society who have improved means of paying for
it; and the profits of the farmer will be raised above the general level
of profits, till the requisite quantity of capital has been employed on
its production. Whether, after this has taken place, corn shall again
fall to its former price, or shall continue permanently higher, will
depend on the quality of the land from which the increased quantity of
corn has been supplied. If it be obtained from land of the same
fertility, as that which was last in cultivation, and with no greater
cost of labour, the price will fall to its former state; if from poorer
land, it will continue permanently higher. The high wages in the first
instance proceeded from an increase in the demand for labour: inasmuch
as it encouraged marriage, and supported children, it produced the
effect of increasing the supply of labour. But when the supply is
obtained, wages will again fall to their former price, if corn has
fallen to its former price: to a higher than the former price, if the
increased supply of corn has been produced from land of an inferior
quality. A high price is by no means incompatible with an abundant
supply: the price is permanently high, not because the quantity is
deficient, but because there has been an increased cost in producing it.
It generally happens indeed, that when a stimulus has been given to
population, an effect is produced beyond what the case requires; the
population may be, and generally is so much increased as,
notwithstanding the increased demand for labour, to bear a greater
proportion to the funds for maintaining labourers than before the
increase of capital. In this case a re-action will take place, wages
will be below their natural level, and will continue so, till the usual
proportion between the supply and demand has been restored. In this case
then, the rise in the price of corn is preceded by a rise of wages, and
therefore entails no distress on the labourer.
A fall in the value of money, in consequence of an influx of the
precious metals from the mines, or from the abuse of the privileges of
banking, is another cause for the rise of the price of food; but it will
make no alteration in the quantity produced. It leaves undisturbed too
the number of labourers, as well as the demand for them; for there will
be neither an increase nor a diminution of capital. The quantity of
necessaries to be allotted to the labourer, depends on the comparative
demand and supply of necessaries, with the comparative demand and supply
of labour; money being only the medium in which the quantity is
expressed; and as neither of these is altered, the real reward of the
labourer will not alter. Money wages will rise, but they will only
enable him to furnish himself with the same quantity of necessaries as
before. Those who dispute this principle, are bound to shew why an
increase of money should not have the same effect in raising the price
of labour, the quantity of which has not been increased, as they
acknowledge it would have on the price of shoes, of hats, and of corn,
if the quantity of those commodities were not increased. The relative
market value of hats and shoes is regulated by the demand and supply of
hats, compared with the demand and supply of shoes, and money is but the
medium in which their value is expressed. If shoes be doubled in price,
hats will also be doubled in price, and they will retain the same
comparative value. So if corn and all the necessaries of the labourer be
doubled in price, labour will be doubled in price also, and while there
is no interruption to the usual demand and supply of necessaries and of
labour, there can be no reason why they should not preserve their
relative value.
Neither a fall in the value of money, nor a tax on raw produce, though
each will raise the price, will _necessarily_ interfere with the
quantity of raw produce; or with the number of people, who are both able
to purchase, and willing to consume it. It is very easy to perceive why,
when the capital of a country increases irregularly, wages should rise,
whilst the price of corn remains stationary, or rises in a less
proportion; and why, when the capital of a country diminishes, wages
should fall whilst corn remains stationary, or falls in a much less
proportion, and this too for a considerable time; the reason is, because
labour is a commodity which cannot be increased and diminished at
pleasure. If there are too few hats in the market for the demand, the
price will rise, but only for a short time; for in the course of one
year, by employing more capital in that trade, any reasonable addition
may be made to the quantity of hats, and therefore their market price
cannot long very much exceed their natural price; but it is not so with
men; you cannot increase their number in one or two years when there is
an increase of capital, nor can you rapidly diminish their number when
capital is in a retrograde state; and therefore, the number of hands
increasing or diminishing slowly, whilst the funds for the maintenance
of labour increase or diminish rapidly, there must be a considerable
interval before the price of labour is exactly regulated by the price of
corn and necessaries; but in the case of a fall in the value of money,
or of a tax on corn, there is not necessarily any excess in the supply
of labour, nor any abatement of demand, and therefore there can be no
reason why the labourer should sustain a real diminution of wages.
A tax on corn does not necessarily diminish the quantity of corn, it
only raises its money price; it does not necessarily diminish the demand
compared with the supply of labour; why then should it diminish the
portion paid to the labourer? Suppose it true that it did diminish the
quantity given to the labourer, in other words, that it did not raise
his money wages in the same proportion as the tax raised the price of
the corn which he consumed; would not the supply of corn exceed the
demand? --would it not fall in price? and would not the labourer thus
obtain his usual portion? In such case indeed capital would be withdrawn
from agriculture; for if the price were not increased by the whole
amount of the tax, agricultural profits would be lower than the general
level of profits, and capital would seek more advantageous employment.
In regard then to a tax on raw produce, which is the point under
discussion, it appears to me that no interval which could bear
oppressively on the labourer, would elapse between the rise in the price
of raw produce, and the rise in the wages of the labourer; and that
therefore no other inconvenience would be suffered by this class, than
that which they would suffer from any other mode of taxation, namely,
the risk that the tax might infringe on the funds destined for the
maintenance of labour, and might therefore check or abate the demand for
it.
With respect to the third objection against taxes on raw produce,
namely, that the raising wages, and lowering profits, is a
discouragement to accumulation, and acts in the same way as a natural
poverty of soil; I have endeavoured to shew in another part of this work
that savings may be as effectually made from expenditure as from
production; from a reduction in the value of commodities, as from a rise
in the rate of profits. By increasing my profits from 1000_l. _ to
1200_l. _, whilst prices continue the same, my power of increasing my
capital by savings is increased but it is not increased so much as it
would be if my profits continued as before, whilst commodities were so
lowered in price, that 800_l. _ would procure me as much as 1000_l. _
purchased before.
Taxation under every form presents but a choice of evils; if it does not
act on profit, it must act on expenditure; and provided the burden be
equally borne, and do not repress reproduction, it is indifferent on
which it is laid. Taxes on production, or on the profits of stock,
whether applied immediately to profits, or indirectly, by taxing the
land or its produce, have this advantage over other taxes; no class of
the community can escape them, and each contributes according to his
means.
From taxes on expenditure a miser may escape; he may have an income of
10,000 per annum, and expend only 300_l. _; but from taxes on profits,
whether direct or indirect, he cannot escape; he will contribute to them
either by giving up a part or the value of a part of his produce; or by
the advanced prices of the necessaries essential to production, he will
be unable to continue to accumulate at the same rate. He may indeed have
an income of the same value, but he will not have the same command of
labour, nor of an equal quantity of materials on which such labour can
be exercised.
If a country is insulated from all others, having no commerce with any
of its neighbours, it can in no way shift any portion of its taxes from
itself. A portion of the produce of its land and labour will be devoted
to the service of the state; and I cannot but think that, unless it
presses unequally on that class which accumulates and saves, it will be
of little importance whether the taxes be levied on profits, on
agricultural, or on manufactured commodities. If my revenue be 1000_l. _
per annum, and I must pay taxes to the amount of 100_l. _, it is of
little importance whether I pay it from my revenue, leaving myself only
900_l. _, or pay 100_l. _ in addition for my agricultural commodities, or
for my manufactured goods. If 100_l. _ is my fair proportion of the
expenses of the country, the virtue of taxation consists in making sure
that I shall pay that 100_l. _, neither more nor less; and that cannot be
effected in any manner so securely as by taxes on wages, profits, or raw
produce.
The fourth and last objection which remains to be noticed is: That by
raising the price of raw produce, the prices of all commodities into
which raw produce enters, will be raised, and that therefore we shall
not meet the foreign manufacturer on equal terms in the general market.
In the first place, corn and _all_ home commodities could not be
materially raised in price without an influx of the precious metals; for
the same quantity of money could not circulate the same quantity of
commodities, at high as at low prices, and the precious metals never
could be purchased with dear commodities. When more gold is required, it
must be obtained by giving more, and not fewer commodities in exchange
for it. Neither could the want of money be supplied by paper, for it is
not paper that regulates the value of gold as a commodity, but gold that
regulates the value of paper. Unless then the value of gold could be
lowered, no paper could be added to the circulation without being
depreciated. And that the value of gold could not be lowered appears
clear, when we consider that the value of gold as a commodity must be
regulated by the quantity of goods which must be given to foreigners in
exchange for it. When gold is cheap, commodities are dear; and when gold
is dear, commodities are cheap, and fall in price. Now as no cause is
shewn why foreigners should sell their gold cheaper than usual, it does
not appear probable that there would be any influx of gold. Without such
an influx there can be no increase of quantity, no fall in its value, no
rise in the general price of goods.
The probable effect of a tax on raw produce would be to raise the price
of all commodities in which raw produce entered, but not in any degree
proportioned to the tax; while other commodities in which no raw produce
entered, such as articles made of the metals and the earths, would fall
in price: so that the same quantity of money as before would be adequate
to the whole circulation.
A tax which should have the effect of raising the price of all home
productions, would not discourage exportation, except during a very
limited time. If they were raised in price at home, they could not
indeed immediately be profitably exported, because they would be subject
to a burthen here from which abroad they were free. The tax would
produce the same effect as an alteration in the value of money, which
was not general and common to all countries, but confined to a single
one. If England were that country, she might not be able to sell, but
she would be able to buy, because importable commodities would not be
raised in price. Under these circumstances nothing but money could be
exported in return for foreign commodities, but this is a trade which
could not long continue; a nation cannot be exhausted of its money, for
after a certain quantity has left it, the value of the remainder will
rise, and such a price of commodities will be the consequence, that they
will again be capable of being profitably exported. When money had
risen, therefore, we should no longer export it in return for goods
imported, but we should export those manufactures which had first been
raised in price, by the rise in the price of the raw produce from which
they were made, and then again lowered by the exportation of money.
But it may be objected, that when money so rose in value, it would rise
with respect to foreign as well as home commodities, and therefore that
all encouragement to import foreign goods would cease. Thus, suppose we
imported goods which cost 100_l. _ abroad, and which sold for 120_l. _
here, we should cease to import them, when the value of money had so
risen in England, that they would only sell for 100_l. _ here: this
however could never happen. The motive which determines us to import a
commodity, is the discovery of its relative cheapness abroad: it is the
comparison of its natural price abroad, with its natural price at home.
If a country exports hats, and imports cloth, it does so because it can
obtain more cloth by making hats, and exchanging them for cloth, than if
it made the cloth itself. If the rise of raw produce occasions any
increased cost of production in making hats, it would occasion also an
increased cost in making cloth. If therefore both commodities were made
at home, they would both rise. One, however, being a commodity which we
import, would not rise, neither would it fall, when the value of money
rose; for by not falling, it would regain its natural relation to the
exported commodity. The rise of raw produce makes a hat rise from 30 to
33 shillings, or 10 per cent. : the same cause if we manufactured cloth,
would make it rise from 20_s. _ to 22_s. _ per yard. This rise does not
destroy the relation between cloth and hats; a hat was, and continues to
be, worth one yard and a half of cloth. But if we import cloth, its
price will continue uniformly at 20_s. _ per yard, unaffected first by
the fall, and then by the rise in the value of money; whilst hats, which
had risen from 30_s. _ to 33_s. _, will again fall from 33_s. _ to 30_s. _,
at which point the relation between cloth and hats will be restored.
To simplify the consideration of this subject, I have been supposing
that a rise in the value of raw materials would affect, in an equal
proportion, all home commodities; that if the effect on one were to
raise it 10 per cent. , it would raise all 10 per cent. ; but as the value
of commodities is very differently made up of raw material and labour;
as some commodities, for instance all those made from the metals, would
be unaffected by the rise of raw produce from the surface of the earth,
it is evident that there would be the greatest variety in the effects
produced on the value of commodities, by a tax on raw produce. As far as
this effect was produced, it would stimulate or retard the exportation
of particular commodities, and would undoubtedly be attended with the
same inconvenience that attends the taxing of commodities; it would
destroy the natural relation between the value of each. Thus, the
natural price of a hat, instead of being the same as a yard and a half
of cloth, might only be of the value of a yard and a quarter, or it
might be of the value of a yard and three quarters, and therefore rather
a different direction might be given to foreign trade. All these
inconveniences would not interfere with the value of the exports and
imports; they would only prevent the very best distribution of the
capital of the whole world, which is never so well regulated, as when
every commodity is freely allowed to settle at its natural price.
Although then the rise in the price of most of our own commodities,
would for a time check exportation generally, and might permanently
prevent the exportation of a few commodities, it could not materially
interfere with foreign trade, and would not place us under any
comparative disadvantage as far as regarded competition in foreign
markets.
CHAPTER VIII. *
TAXES ON RENT.
A tax on rent would affect rent only; it would fall wholly on landlords,
and could not be shifted to any class of consumers. The landlord could
not raise his rent, because he would leave unaltered the difference
between the produce obtained from the least productive land in
cultivation, and that obtained from land of every other quality. Three
sorts of land, No. 1, 2, and 3, are in cultivation, and yield
respectively with the same labour 180, 170, and 160 quarters of wheat;
but No. 3 pays no rent, and is therefore untaxed: the rent then of No. 2
cannot be made to exceed the value of ten, nor No. 1, of twenty
quarters. Such a tax could not raise the price of raw produce, because
as the cultivator of No. 3 pays neither rent nor tax, he would in no way
be enabled to raise the price of the commodity produced. A tax on rent
would not discourage the cultivation of fresh land, for such land pays
no rent, and would be untaxed. If No. 4 were taken into cultivation,
and yielded 150 quarters, no tax would be paid for such land; but it
would create a rent of ten quarters on No. 3, which would then commence
paying the tax.
A tax on rent, as rent is constituted, would discourage cultivation,
because it would be a tax on the profits of the landlord. The term rent
of land, as I have elsewhere observed, is applied to the whole amount of
the value paid by the farmer to his landlord, a part only of which is
strictly rent. The buildings and fixtures, and other expenses paid for
by the landlord, form strictly a part of the stock of the farm, and must
have been furnished by the tenant, if not provided by the landlord. Rent
is the sum paid to the landlord for the use of the land, and for the use
of the land only. The further sum that is paid to him under the name of
rent, is for the use of the buildings, &c. , and is really the profits of
the landlord's stock. In taxing rent, as no distinction would be made
between that part paid for the use of the land, and that paid for the
use of the landlord's stock, a portion of the tax would fall on the
landlord's profits, and would therefore discourage cultivation, unless
the price of raw produce rose. On that land, for the use of which no
rent was paid, a compensation under that name might be given to the
landlord for the use of his buildings. These buildings would not be
erected, nor would raw produce be grown on such land, till the price at
which it sold would not only pay for all the usual outgoings, but also
for this additional one of the tax. This part of the tax does not fall
on the landlord, nor on the farmer, but on the consumer of raw produce.
There can be little doubt, but that if a tax were laid on rent,
landlords would soon find a way to discriminate between that which was
paid to them for the use of the land, and that which was paid for the
use of the buildings, and the improvements which were made by the
landlord's stock. The latter would either be called the rent of house
and buildings, or in all new land taken into cultivation such buildings
and improvements would be made by the tenant, and not by the landlord.
The landlord's capital might indeed be really employed for that purpose;
it might be nominally expended by the tenant, the landlord furnishing
him with the means, either in the shape of a loan, or in the purchase of
an annuity for the duration of the lease. Whether distinguished or not,
there is a real difference between the nature of the compensations which
the landlord receives for these different objects; and it is quite
certain, that a tax on the real rent of land falls wholly on the
landlord, but that a tax on that remuneration which the landlord
receives for the use of his stock expended on the farm, falls on the
consumer of raw produce. If a tax were laid on rent, and no means of
separating the remuneration now paid by the tenant to the landlord under
the name of rent were adopted, the tax, as far as it regarded the rent
on the buildings and other fixtures, would never fall for any length of
time on the landlord, but on the consumer. The capital expended on these
buildings, &c. , must afford the usual profits of stock; but it would
cease to afford this profit on the land last cultivated, if the expenses
of those buildings, &c. did not fall on the tenant; and if they did, the
tenant would then cease to make his usual profits of stock, unless he
could charge them on the consumer.
CHAPTER IX.
TITHES.
Tithes are a tax on the gross produce of the land, and, like taxes on
raw produce, fall wholly on the consumer. They differ from a tax on
rent, inasmuch as they affect land which such a tax would not reach; and
raise the price of raw produce, which that tax e of raw produce, which
that tax would not alter. Lands of the worst quality, as well as of the
best, pay tithes, and exactly in proportion to the quantity of produce
obtained from them; tithes are therefore an equal tax.
If land of the last quality, or that which pays no rent, and which
regulates the price of corn, yield a sufficient quantity to give the
farmer the usual profits of stock, when the price of wheat is 4_l. _ per
quarter, the price must rise to 4_l. _ 8_s. _ before the same profits can
be obtained after the tithes are imposed, because for every quarter of
wheat the cultivator must pay eight shillings to the church.
The only difference between tithes and taxes on raw produce, is, that
one is a variable money tax, the other a fixed money tax. In a
stationary state of society, where there is neither increased nor
diminished facility of producing corn, they will be precisely the same
in their effects; for in such a state corn will be at an invariable
price, and the tax will therefore be also invariable. In either a
retrograde state, or in a state in which great improvements are made in
agriculture, and where consequently raw produce will fall in value
comparatively with other things, tithes will be a lighter tax than a
permanent money tax; for if the price of corn should fall from 4_l. _ to
3_l. _, the tax would fall from eight to six shillings. In a progressive
state of society, yet without any marked improvements in agriculture,
the price of corn would rise, and tithes would be a heavier tax than a
permanent money tax. If corn rose from 4_l. _ to 5_l. _, the tithes on
the same land would advance from eight to ten shillings.
Neither tithes nor a money tax will affect the money rent of landlords,
but both will materially affect corn rents. We have already observed how
a money tax operates on corn rents, and it is equally evident that a
similar effect would be produced by tithes. If the lands, No. 1, 2, 3,
respectively produced 180, 170, and 160 quarters, the rents might be on
No. 1, twenty quarters, and on No. 2, ten quarters; but they would no
longer preserve that proportion after the payment of tithes: for if a
tenth be taken from each, the remaining produce will be 162, 153, 144,
and consequently the corn rent of No. 1 will be reduced to eighteen, and
that of No. 2 to nine quarters. But the price of corn would rise from
4_l. _ to 4_l. _ 8_s. _ 10-2/3_d. _; for nine quarters are to 4_l. _ as ten
quarters to 4_l. _ 8_s. _ 10-2/3_d. _, and consequently the money rent
would continue unaltered; for on No. 1 it would be 80_l. _, and on No. 2,
40_l. _
The chief objection against tithes is, that they are not a permanent and
fixed tax, but increase in value, in proportion as the difficulty of
producing corn increases. If those difficulties should make the price of
corn 4_l. _ the tax is 8_s. _, if they should increase it to 5_l.
could make me consent to give 130_l. _ for a bill which would give me
100_l. _ in Hamburgh, but that my pounds were not good pounds
sterling? --they were deteriorated, were degraded in intrinsic value
below the pounds sterling of Hamburgh, and if actually sent there, at an
expense of 5_l. _, would sell only for 100_l. _ With metallic pounds
sterling, it is not denied that my 130_l. _ would procure me 125_l. _ in
Hamburgh, but with paper pounds sterling I can only obtain 100_l. _; and
yet it is maintained that 130_l. _ in paper, is of equal value with
130_l. _ in silver or gold.
Some indeed more reasonably maintained, that 130_l. _ in paper was not of
equal value with 130_l. _ in metallic money; but they said that it was
the metallic money which had changed its value, and not the paper money.
They wished to confine the meaning of the word depreciation to an actual
fall of value, and not to a comparative difference between the value of
money, and the standard by which by law it is regulated. One hundred
pounds of English money was formerly of equal value with, and could
purchase 100_l. _ of Hamburgh money: in any other country a bill of
100_l. _ on England, or on Hamburgh, could purchase precisely the same
quantity of commodities. To obtain the same things, I was lately obliged
to give 130_l. _ English money, when Hamburgh could obtain them for
100_l. _ Hamburgh money. If English money was of the same value then as
before, Hamburgh money must have risen in value. But where is the proof
of this? How is it to be ascertained whether English money has fallen,
or Hamburgh money has risen? there is no standard by which this can be
determined. It is a plea which admits of no proof, and can neither be
positively affirmed, nor positively contradicted. The nations of the
world must have been early convinced, that there was no standard of
value in nature, to which we might unerringly refer, and therefore chose
a medium, which, on the whole appeared to them less variable than any
other commodity.
To this standard we must conform till the law is changed, and till some
other commodity is discovered, by the use of which we shall obtain a
more perfect standard, than that which we have established. While gold
is exclusively the standard in this country, money will be depreciated,
when a pound sterling is not of equal value with 5 dwts. and 3 grs. of
standard gold, and that, whether gold rises or falls in general value.
CHAPTER VII.
ON TAXES.
Taxes are a portion of the produce of the land and labour of a country,
placed at the disposal of the government; and are always ultimately
paid, either from the capital, or from the revenue of the country.
We have already shewn how the capital of a country is either fixed or
circulating, according as it is of a more or of a less durable nature.
It is difficult to define strictly, where the distinction between
circulating and fixed capital begins; for there are almost infinite
degrees in the durability of capital. The food of a country is consumed
and reproduced, at least once in every year; the clothing of the
labourer is probably not consumed and reproduced in less than two
years; whilst his house and furniture are calculated to endure for a
period of ten or twenty years.
When the annual productions of a country exceed its annual consumption,
it is said to increase its capital; when its annual consumption at least
is not replaced by its annual production, it is said to diminish its
capital. Capital may therefore be increased by an increased production,
or by a diminished consumption.
If the consumption of the government, when increased by the levy of
additional taxes, be met either by an increased production, or by a
diminished consumption on the part of the people, the taxes will fall
upon revenue, and the national capital will remain unimpaired; but if
there be no increased production or diminished consumption on the part
of the people, the taxes will necessarily fall on capital.
In proportion as the capital of a country is diminished, its productions
will be necessarily diminished; and therefore, if the same expenditure
on the part of the people and of the government continue, with a
constantly diminishing annual reproduction, the resources of the people
and the state will fall away with increasing rapidity, and distress and
ruin will follow.
Notwithstanding the immense expenditure of the English government during
the last twenty years, there can be little doubt but that the increased
production on the part of the people has more than compensated for it.
The national capital has not merely been unimpaired, it has been greatly
increased, and the annual revenue of the people, even after the payment
of their taxes, is probably greater at the present time than at any
former period of our history.
For the proof of this we might refer to the increase of population--to
the extension of agriculture--to the increase of shipping and
manufactures--to the building of docks--to the opening of numerous
canals, as well as to many other expensive undertakings; all denoting an
increase both of capital and of annual production.
There are no taxes which have not a tendency to impede accumulation,
because there are none which may not be considered as checking
production, and as causing the same effects as a bad soil or climate, a
diminution of skill or industry, a worse distribution of labour, or the
loss of some useful machinery; and although some taxes will produce
these effects in a much greater degree than others, it must be confessed
that the great evil of taxation is to be found, not so much in any
selection of its objects, as in the general amount of its effects taken
collectively.
Taxes are not necessarily taxes on capital, because they are laid on
capital; nor on income, because they are laid on income. If from my
income of 1000_l. _ per annum, I am required to pay 100_l. _, it will
really be a tax on my income, should I be content with the expenditure
of the remaining 900_l. _; but it will be a tax on capital, if I continue
to spend 1000_l. _
The capital from which my income of 1000_l. _ is derived may be of the
value of 10,000_l. _; a tax of one per cent. on such capital would be
100_l. _; but my capital would be unaffected, if after paying this tax, I
in like manner contented myself with the expenditure of 900_l. _
The desire which every man has to keep his station in life, and to
maintain his wealth at the height which it has once attained, occasions
most taxes, whether laid on capital or on income, to be paid from
income; and therefore as taxation proceeds, or as government increases
its expenditure, the annual expenditure of the people must be
diminished, unless they are enabled proportionally to increase their
capitals and income. It should be the policy of governments to encourage
a disposition to do this in the people, and never to lay such taxes as
will inevitably fall on capital; since by so doing, they impair the
funds for the maintenance of labour, and thereby diminish the future
production of the country.
In England this policy has been neglected, in taxing the probates of
wills, in the legacy duty, and in all taxes affecting the transference
of property from the dead to the living. If a legacy of 1000_l. _ be
subject to a tax of 100_l. _, the legatee considers his legacy as only
900_l. _, and feels no particular motive to save the 100_l. _ duty from
his expenditure, and thus the capital of the country is diminished; but
if he had really received 1000_l. _ and had been required to pay 100_l. _
as a tax on income, on wine, on horses, or on servants, he would
probably have diminished, or rather not increased his expenditure by
that sum, and the capital of the country would have been unimpaired.
"Taxes upon the transference of property from the dead to the living,"
says Adam Smith, "fall finally, as well as immediately, upon the persons
to whom the property is transferred. Taxes on the sale of land fall
altogether upon the seller. The seller is almost always under the
necessity of selling, and must therefore take such a price as he can
get. The buyer is scarce ever under the necessity of buying, and 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 very cruel and oppressive. " "Stamp duties,
and duties upon the registration of bonds and contracts for borrowed
money, fall altogether upon the borrower, and in fact are always paid by
him. Duties of the same kind upon law proceedings fall upon the suitors.
They reduce to both the capital value of the subject in dispute. The
more it costs to acquire any property, the less must be the neat value
of it when acquired. All taxes upon the transference of property of
every kind, so far as they diminish the capital value of that property,
tend to diminish the funds destined for the maintenance of labour. They
are all more or less unthrifty taxes, that increase the revenue of the
sovereign, which seldom maintains any but unproductive labourers, at the
expense of the capital of the people, which maintains none but
productive. "
But this is not the only objection to taxes on the transference of
property; they prevent the national capital from being distributed in
the way most beneficial to the community. For the general prosperity,
there cannot be too much facility given to the conveyance and exchange
of all kinds of property, as it is by such means that capital of every
species is likely to find its way into the hands of those who will best
employ it in increasing the productions 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 in 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. "
Those taxes however are easily collected; and this by many may be
thought to afford some compensation for their injurious effects.
CHAPTER VIII.
TAXES ON RAW PRODUCE.
Having in a former part of this work established, I hope satisfactorily,
the principle, that the price of corn is regulated by the cost of its
production on that land exclusively, or rather with that capital
exclusively, which pays no rent, it will follow that whatever may
increase the cost of production will increase the price; whatever may
reduce it, will lower the price. The necessity of cultivating poorer
land, or of obtaining a less return with a given additional capital on
land already in cultivation, will inevitably raise the exchangeable
value of raw produce. The discovery of machinery, which will enable the
cultivator to obtain his corn at a less cost of production, will
necessarily lower its exchangeable value. Any tax which may be imposed
on the cultivator, whether in the shape of land-tax, tithes, or a tax on
the produce when obtained, will increase the cost of production, and
will therefore raise the price of raw produce.
If the price of raw produce did not rise so as to compensate the
cultivator for the tax, he would naturally quit a trade where his
profits were reduced below the general level of profits: this would
occasion a diminution of supply, until the unabated demand should have
produced such a rise in the price of raw produce, as to make the
cultivation of it equally profitable with the investment of capital in
any other trade.
A rise of price is the only means by which he could pay the tax, and
continue to derive the usual and general profits from this employment of
his capital. He could not deduct the tax from his rent, and oblige his
landlord to pay it, for he pays no rent. He would not deduct it from his
profits, for there is no reason why he should continue in an employment
which yields small profits, when all other employments are yielding
greater. There can then be no question, but that he will have the power
of raising the price of raw produce by a sum equal to the tax.
A tax on raw produce would not be paid by the landlord; it would not be
paid by the farmer; but it would be paid, in an increased price, by the
consumer.
Rent, it should be remembered, is the difference between the produce
obtained by equal portions of labour and capital employed on land of the
same or different qualities. It should be remembered too, that the money
rent of land, and the corn rent of land, do not vary in the same
proportion.
In the case of a tax on raw produce, of a land tax, or tithes, the corn
rent of land will vary, while the money rent will remain as before.
If, as we have before supposed, the land in cultivation were of three
qualities, and that with an equal amount of capital,
180 qrs. of corn were obtained from land No. 1.
170 " " " from " 2.
160 " " " from " 3.
the rent of No. 1 would be 20 quarters, the difference between that of
No. 3 and No. 1; and of No. 2, 10 quarters, the difference between that
of No. 3 and No. 2; while No. 3 would pay no rent whatever.
Now if the price of corn were 4_l. _ per quarter, the money rent of No. 1
would be 80_l. _, and that of No. 2, 40_l. _
Suppose a tax of 8_s. _ per quarter to be imposed on corn; then the price
would rise to 4_l. _ 8_s. _; and if the landlords obtained the same corn
rent as before, the rent of No. 1 would be 88_l. _, and that of No. 2,
44_l. _ But they would not obtain the same corn rent; the tax would fall
heavier on No. 1 than on No. 2, and on No. 2 than on No. 3, because it
would be levied on a greater quantity of corn. It is the difficulty of
production on No. 3 which regulates price; and corn rises to 4_l. _
8_s. _, that the profits of the capital employed on No. 3 may be on a
level with the general profits of stock.
The produce and tax on the three qualities of land will be as follows:
No. 1, yielding 180 qrs. at 4_l. _ 8_s. _ per qr. £792
Deduct the value of 16. 3 or 8_s. _ per qr. on 180 qrs. 72
----- ----
Net corn produce 163. 7 Net money produce £720
----- ----
No. 2, yielding 170 qrs. at 4_l. _ 8_s. _ per qr. £748
Deduct the value of 15. 4 {qrs. at 4_l. _ 8_s. _ or 8_s. _ per}
{ qr. on 170 qrs. } 68
----- ----
Net corn produce 154. 6 Net money produce of £680
----- ----
No. 3, 160 qrs. at 4_l. _ 8_s. _ £704
Deduct the value of 14. 5 {qrs. at 4_l. _ 8_s. _ or 8_s. _ per}
{ qr. on 160 } 64
----- ----
Net corn produce 145. 5 Net money produce £640
----- ----
The money rent of No. 1 would continue to be 80_l. _, or the difference
between 640 and 720_l. _; and that of No. 2, 40_l. _, or the difference
between 640_l. _ and 680_l. _, precisely the same as before; but the corn
rent will be reduced from 20 quarters on No. 1 to 18. 2 quarters, and
that on No. 2 from 10 to 9. 1 quarters.
A tax on corn, then, would fall on the consumers of corn, and would
raise its value as compared with all other commodities, in a degree
proportioned to the tax. In proportion as raw produce entered into the
composition of other commodities, would their value also be raised,
unless the tax were countervailed by other causes. They would in fact be
indirectly taxed, and their value would rise in proportion to the tax.
A tax, however, on raw produce, and on the necessaries of the labourer,
would have another effect--it would raise wages. From the effect of the
principle of population on the increase of mankind, wages of the lowest
kind never continue much above that rate which nature and habit demand
for the support of the labourers. This class is never able to bear any
considerable portion of taxation; and, consequently, if they had to pay
8_s. _ per quarter in addition for wheat, and in some smaller proportion
for other necessaries, they would not be able to subsist on the same
wages as before, and to keep up the race of labourers. Wages would
inevitably and necessarily rise; and in proportion as they rose, profits
would fall. Government would receive a tax of 8_s. _ per quarter on all
the corn consumed in the country, a part of which would be paid directly
by the consumers of corn; the other part would be paid indirectly by
those who employed labour, and would affect profits in the same manner
as if wages had been raised from the increased demand for labour
compared with the supply, or from an increasing difficulty of obtaining
the food and necessaries required by the labourer.
In as far as the tax might affect consumers, it would be an equal tax,
but in as far as it would affect profits, it would be a partial tax; for
it would neither operate on the landlord nor on the stockholder, since
they would continue to receive, the one the same money rent, the other
the same money dividends as before. A tax on the produce of the land
then would operate as follows:
1st. It would raise the price of raw produce by a sum
equal to the tax, and would therefore fall on each
consumer in proportion to his consumption.
2dly. It would raise the wages of labour, and lower
profits.
It may then be objected against such a tax,
1st. That by raising the wages of labour, and lowering profits,
it is an unequal tax, as it affects the income of the farmer,
trader, and manufacturer, and leaves untaxed the income of the
landlord, stockholder, and others enjoying fixed incomes.
2dly. That there would be a considerable interval between
the rise in the price of corn and the rise of wages,
during which much distress would be experienced by the
labourer.
3rdly. That raising wages and lowering profits is a
discouragement to accumulation, and acts in the same way
as a natural poverty of soil.
4thly. That by raising the price of raw produce, the
prices of all commodities into which raw produce enters,
would be raised, and that therefore we should not meet
the foreign manufacture on equal terms in the general
market.
With respect to the first objection, that by raising the wages of labour
and lowering profits it acts unequally, as it affects the income of the
farmer, trader, and manufacturer, and leaves untaxed the income of the
landlord, stockholder, and others enjoying fixed incomes,--it may be
answered, that if the operation of the tax be unequal, it is for the
legislature to make it equal, by taxing directly the rent of land, and
the dividends from stock. By so doing, all the objects of an income tax
would be obtained, without the inconvenience of having recourse to the
obnoxious measure of prying into every man's concerns, and arming
commissioners with powers repugnant to the habits and feelings of a free
country.
With respect to the second objection, that there would be a considerable
interval between the rise of the price of corn and the rise of wages,
during which much distress would be experienced by the lower classes,--I
answer, that under different circumstances, wages follow the price of
raw produce with very different degrees of celerity; that in some cases
no effect whatever is produced on wages by a rise of corn; in others,
the rise of wages precedes the rise in the price of corn; again, in some
the effect is slow, and in others the interval must be very short.
Those who maintain that it is the price of necessaries which regulates
the price of labour, always allowing for the particular state of
progression in which the society, may be seem to have conceded too
readily, that a rise or fall in the price of necessaries will be very
slowly succeeded by a rise or fall of wages. A high price of provisions
may arise from very different causes, and may accordingly produce very
different effects. It may arise from
1st. A deficient supply.
2nd. From a gradually increasing demand, which may be
ultimately attended with an increased cost of production.
3dly. From a fall in the value of money.
4thly. From taxes on necessaries.
These four causes have not been sufficiently distinguished and separated
by those who have inquired into the influence of a high price of
necessaries on wages. We will examine them severally.
A bad harvest will produce a high price of provisions, and the high
price is the only means by which the consumption is compelled to conform
to the state of the supply. If all the purchasers of corn were rich,
the price might rise to any degree, but the result would remain
unaltered; the price would at last be so high, that the least rich would
be obliged to forego the use of a part of the quantity which they
usually consumed, as by diminished consumption alone, the demand could
be brought down to the limits of the supply. Under such circumstances no
policy can be more absurd, than that of forcibly regulating money wages
by the price of food, as is frequently done, by misapplication of the
poor laws. Such a measure affords no real relief to the labourer,
because its effect is to raise still higher the price of corn, and at
last he must be obliged to limit his consumption in proportion to the
limited supply. In the natural course of affairs a deficient supply from
bad seasons, without any pernicious and unwise interference, would not
be followed by a rise of wages. The raising of wages is merely nominal
to those who receive them; it increases the competition in the corn
market, and its ultimate effect is to raise the profits of the growers
and dealers in corn. The wages of labour are really regulated by the
proportion between the supply and demand of necessaries, and the supply
and demand of labour; and money is merely the medium, or measure, in
which wages are expressed. In this case then the distress of the
labourer is unavoidable, and no legislation can afford a remedy, except
by the importation of additional food.
When a high price of corn is the effect of an increasing demand, it is
always preceded by an increase of wages, for demand cannot increase,
without an increase of means in the people to pay for that which they
desire. An accumulation of capital naturally produces an increased
competition among the employers of labour, and a consequent rise in its
price. The increased wages are not immediately expended on food, but are
first made to contribute to the other enjoyments of the labourer. His
improved condition however induces, and enables him to marry, and then
the demand for food for the support of his family naturally supersedes
that of those other enjoyments on which his wages were temporarily
expended. Corn rises then because the demand for it increases, because
there are those in the society who have improved means of paying for
it; and the profits of the farmer will be raised above the general level
of profits, till the requisite quantity of capital has been employed on
its production. Whether, after this has taken place, corn shall again
fall to its former price, or shall continue permanently higher, will
depend on the quality of the land from which the increased quantity of
corn has been supplied. If it be obtained from land of the same
fertility, as that which was last in cultivation, and with no greater
cost of labour, the price will fall to its former state; if from poorer
land, it will continue permanently higher. The high wages in the first
instance proceeded from an increase in the demand for labour: inasmuch
as it encouraged marriage, and supported children, it produced the
effect of increasing the supply of labour. But when the supply is
obtained, wages will again fall to their former price, if corn has
fallen to its former price: to a higher than the former price, if the
increased supply of corn has been produced from land of an inferior
quality. A high price is by no means incompatible with an abundant
supply: the price is permanently high, not because the quantity is
deficient, but because there has been an increased cost in producing it.
It generally happens indeed, that when a stimulus has been given to
population, an effect is produced beyond what the case requires; the
population may be, and generally is so much increased as,
notwithstanding the increased demand for labour, to bear a greater
proportion to the funds for maintaining labourers than before the
increase of capital. In this case a re-action will take place, wages
will be below their natural level, and will continue so, till the usual
proportion between the supply and demand has been restored. In this case
then, the rise in the price of corn is preceded by a rise of wages, and
therefore entails no distress on the labourer.
A fall in the value of money, in consequence of an influx of the
precious metals from the mines, or from the abuse of the privileges of
banking, is another cause for the rise of the price of food; but it will
make no alteration in the quantity produced. It leaves undisturbed too
the number of labourers, as well as the demand for them; for there will
be neither an increase nor a diminution of capital. The quantity of
necessaries to be allotted to the labourer, depends on the comparative
demand and supply of necessaries, with the comparative demand and supply
of labour; money being only the medium in which the quantity is
expressed; and as neither of these is altered, the real reward of the
labourer will not alter. Money wages will rise, but they will only
enable him to furnish himself with the same quantity of necessaries as
before. Those who dispute this principle, are bound to shew why an
increase of money should not have the same effect in raising the price
of labour, the quantity of which has not been increased, as they
acknowledge it would have on the price of shoes, of hats, and of corn,
if the quantity of those commodities were not increased. The relative
market value of hats and shoes is regulated by the demand and supply of
hats, compared with the demand and supply of shoes, and money is but the
medium in which their value is expressed. If shoes be doubled in price,
hats will also be doubled in price, and they will retain the same
comparative value. So if corn and all the necessaries of the labourer be
doubled in price, labour will be doubled in price also, and while there
is no interruption to the usual demand and supply of necessaries and of
labour, there can be no reason why they should not preserve their
relative value.
Neither a fall in the value of money, nor a tax on raw produce, though
each will raise the price, will _necessarily_ interfere with the
quantity of raw produce; or with the number of people, who are both able
to purchase, and willing to consume it. It is very easy to perceive why,
when the capital of a country increases irregularly, wages should rise,
whilst the price of corn remains stationary, or rises in a less
proportion; and why, when the capital of a country diminishes, wages
should fall whilst corn remains stationary, or falls in a much less
proportion, and this too for a considerable time; the reason is, because
labour is a commodity which cannot be increased and diminished at
pleasure. If there are too few hats in the market for the demand, the
price will rise, but only for a short time; for in the course of one
year, by employing more capital in that trade, any reasonable addition
may be made to the quantity of hats, and therefore their market price
cannot long very much exceed their natural price; but it is not so with
men; you cannot increase their number in one or two years when there is
an increase of capital, nor can you rapidly diminish their number when
capital is in a retrograde state; and therefore, the number of hands
increasing or diminishing slowly, whilst the funds for the maintenance
of labour increase or diminish rapidly, there must be a considerable
interval before the price of labour is exactly regulated by the price of
corn and necessaries; but in the case of a fall in the value of money,
or of a tax on corn, there is not necessarily any excess in the supply
of labour, nor any abatement of demand, and therefore there can be no
reason why the labourer should sustain a real diminution of wages.
A tax on corn does not necessarily diminish the quantity of corn, it
only raises its money price; it does not necessarily diminish the demand
compared with the supply of labour; why then should it diminish the
portion paid to the labourer? Suppose it true that it did diminish the
quantity given to the labourer, in other words, that it did not raise
his money wages in the same proportion as the tax raised the price of
the corn which he consumed; would not the supply of corn exceed the
demand? --would it not fall in price? and would not the labourer thus
obtain his usual portion? In such case indeed capital would be withdrawn
from agriculture; for if the price were not increased by the whole
amount of the tax, agricultural profits would be lower than the general
level of profits, and capital would seek more advantageous employment.
In regard then to a tax on raw produce, which is the point under
discussion, it appears to me that no interval which could bear
oppressively on the labourer, would elapse between the rise in the price
of raw produce, and the rise in the wages of the labourer; and that
therefore no other inconvenience would be suffered by this class, than
that which they would suffer from any other mode of taxation, namely,
the risk that the tax might infringe on the funds destined for the
maintenance of labour, and might therefore check or abate the demand for
it.
With respect to the third objection against taxes on raw produce,
namely, that the raising wages, and lowering profits, is a
discouragement to accumulation, and acts in the same way as a natural
poverty of soil; I have endeavoured to shew in another part of this work
that savings may be as effectually made from expenditure as from
production; from a reduction in the value of commodities, as from a rise
in the rate of profits. By increasing my profits from 1000_l. _ to
1200_l. _, whilst prices continue the same, my power of increasing my
capital by savings is increased but it is not increased so much as it
would be if my profits continued as before, whilst commodities were so
lowered in price, that 800_l. _ would procure me as much as 1000_l. _
purchased before.
Taxation under every form presents but a choice of evils; if it does not
act on profit, it must act on expenditure; and provided the burden be
equally borne, and do not repress reproduction, it is indifferent on
which it is laid. Taxes on production, or on the profits of stock,
whether applied immediately to profits, or indirectly, by taxing the
land or its produce, have this advantage over other taxes; no class of
the community can escape them, and each contributes according to his
means.
From taxes on expenditure a miser may escape; he may have an income of
10,000 per annum, and expend only 300_l. _; but from taxes on profits,
whether direct or indirect, he cannot escape; he will contribute to them
either by giving up a part or the value of a part of his produce; or by
the advanced prices of the necessaries essential to production, he will
be unable to continue to accumulate at the same rate. He may indeed have
an income of the same value, but he will not have the same command of
labour, nor of an equal quantity of materials on which such labour can
be exercised.
If a country is insulated from all others, having no commerce with any
of its neighbours, it can in no way shift any portion of its taxes from
itself. A portion of the produce of its land and labour will be devoted
to the service of the state; and I cannot but think that, unless it
presses unequally on that class which accumulates and saves, it will be
of little importance whether the taxes be levied on profits, on
agricultural, or on manufactured commodities. If my revenue be 1000_l. _
per annum, and I must pay taxes to the amount of 100_l. _, it is of
little importance whether I pay it from my revenue, leaving myself only
900_l. _, or pay 100_l. _ in addition for my agricultural commodities, or
for my manufactured goods. If 100_l. _ is my fair proportion of the
expenses of the country, the virtue of taxation consists in making sure
that I shall pay that 100_l. _, neither more nor less; and that cannot be
effected in any manner so securely as by taxes on wages, profits, or raw
produce.
The fourth and last objection which remains to be noticed is: That by
raising the price of raw produce, the prices of all commodities into
which raw produce enters, will be raised, and that therefore we shall
not meet the foreign manufacturer on equal terms in the general market.
In the first place, corn and _all_ home commodities could not be
materially raised in price without an influx of the precious metals; for
the same quantity of money could not circulate the same quantity of
commodities, at high as at low prices, and the precious metals never
could be purchased with dear commodities. When more gold is required, it
must be obtained by giving more, and not fewer commodities in exchange
for it. Neither could the want of money be supplied by paper, for it is
not paper that regulates the value of gold as a commodity, but gold that
regulates the value of paper. Unless then the value of gold could be
lowered, no paper could be added to the circulation without being
depreciated. And that the value of gold could not be lowered appears
clear, when we consider that the value of gold as a commodity must be
regulated by the quantity of goods which must be given to foreigners in
exchange for it. When gold is cheap, commodities are dear; and when gold
is dear, commodities are cheap, and fall in price. Now as no cause is
shewn why foreigners should sell their gold cheaper than usual, it does
not appear probable that there would be any influx of gold. Without such
an influx there can be no increase of quantity, no fall in its value, no
rise in the general price of goods.
The probable effect of a tax on raw produce would be to raise the price
of all commodities in which raw produce entered, but not in any degree
proportioned to the tax; while other commodities in which no raw produce
entered, such as articles made of the metals and the earths, would fall
in price: so that the same quantity of money as before would be adequate
to the whole circulation.
A tax which should have the effect of raising the price of all home
productions, would not discourage exportation, except during a very
limited time. If they were raised in price at home, they could not
indeed immediately be profitably exported, because they would be subject
to a burthen here from which abroad they were free. The tax would
produce the same effect as an alteration in the value of money, which
was not general and common to all countries, but confined to a single
one. If England were that country, she might not be able to sell, but
she would be able to buy, because importable commodities would not be
raised in price. Under these circumstances nothing but money could be
exported in return for foreign commodities, but this is a trade which
could not long continue; a nation cannot be exhausted of its money, for
after a certain quantity has left it, the value of the remainder will
rise, and such a price of commodities will be the consequence, that they
will again be capable of being profitably exported. When money had
risen, therefore, we should no longer export it in return for goods
imported, but we should export those manufactures which had first been
raised in price, by the rise in the price of the raw produce from which
they were made, and then again lowered by the exportation of money.
But it may be objected, that when money so rose in value, it would rise
with respect to foreign as well as home commodities, and therefore that
all encouragement to import foreign goods would cease. Thus, suppose we
imported goods which cost 100_l. _ abroad, and which sold for 120_l. _
here, we should cease to import them, when the value of money had so
risen in England, that they would only sell for 100_l. _ here: this
however could never happen. The motive which determines us to import a
commodity, is the discovery of its relative cheapness abroad: it is the
comparison of its natural price abroad, with its natural price at home.
If a country exports hats, and imports cloth, it does so because it can
obtain more cloth by making hats, and exchanging them for cloth, than if
it made the cloth itself. If the rise of raw produce occasions any
increased cost of production in making hats, it would occasion also an
increased cost in making cloth. If therefore both commodities were made
at home, they would both rise. One, however, being a commodity which we
import, would not rise, neither would it fall, when the value of money
rose; for by not falling, it would regain its natural relation to the
exported commodity. The rise of raw produce makes a hat rise from 30 to
33 shillings, or 10 per cent. : the same cause if we manufactured cloth,
would make it rise from 20_s. _ to 22_s. _ per yard. This rise does not
destroy the relation between cloth and hats; a hat was, and continues to
be, worth one yard and a half of cloth. But if we import cloth, its
price will continue uniformly at 20_s. _ per yard, unaffected first by
the fall, and then by the rise in the value of money; whilst hats, which
had risen from 30_s. _ to 33_s. _, will again fall from 33_s. _ to 30_s. _,
at which point the relation between cloth and hats will be restored.
To simplify the consideration of this subject, I have been supposing
that a rise in the value of raw materials would affect, in an equal
proportion, all home commodities; that if the effect on one were to
raise it 10 per cent. , it would raise all 10 per cent. ; but as the value
of commodities is very differently made up of raw material and labour;
as some commodities, for instance all those made from the metals, would
be unaffected by the rise of raw produce from the surface of the earth,
it is evident that there would be the greatest variety in the effects
produced on the value of commodities, by a tax on raw produce. As far as
this effect was produced, it would stimulate or retard the exportation
of particular commodities, and would undoubtedly be attended with the
same inconvenience that attends the taxing of commodities; it would
destroy the natural relation between the value of each. Thus, the
natural price of a hat, instead of being the same as a yard and a half
of cloth, might only be of the value of a yard and a quarter, or it
might be of the value of a yard and three quarters, and therefore rather
a different direction might be given to foreign trade. All these
inconveniences would not interfere with the value of the exports and
imports; they would only prevent the very best distribution of the
capital of the whole world, which is never so well regulated, as when
every commodity is freely allowed to settle at its natural price.
Although then the rise in the price of most of our own commodities,
would for a time check exportation generally, and might permanently
prevent the exportation of a few commodities, it could not materially
interfere with foreign trade, and would not place us under any
comparative disadvantage as far as regarded competition in foreign
markets.
CHAPTER VIII. *
TAXES ON RENT.
A tax on rent would affect rent only; it would fall wholly on landlords,
and could not be shifted to any class of consumers. The landlord could
not raise his rent, because he would leave unaltered the difference
between the produce obtained from the least productive land in
cultivation, and that obtained from land of every other quality. Three
sorts of land, No. 1, 2, and 3, are in cultivation, and yield
respectively with the same labour 180, 170, and 160 quarters of wheat;
but No. 3 pays no rent, and is therefore untaxed: the rent then of No. 2
cannot be made to exceed the value of ten, nor No. 1, of twenty
quarters. Such a tax could not raise the price of raw produce, because
as the cultivator of No. 3 pays neither rent nor tax, he would in no way
be enabled to raise the price of the commodity produced. A tax on rent
would not discourage the cultivation of fresh land, for such land pays
no rent, and would be untaxed. If No. 4 were taken into cultivation,
and yielded 150 quarters, no tax would be paid for such land; but it
would create a rent of ten quarters on No. 3, which would then commence
paying the tax.
A tax on rent, as rent is constituted, would discourage cultivation,
because it would be a tax on the profits of the landlord. The term rent
of land, as I have elsewhere observed, is applied to the whole amount of
the value paid by the farmer to his landlord, a part only of which is
strictly rent. The buildings and fixtures, and other expenses paid for
by the landlord, form strictly a part of the stock of the farm, and must
have been furnished by the tenant, if not provided by the landlord. Rent
is the sum paid to the landlord for the use of the land, and for the use
of the land only. The further sum that is paid to him under the name of
rent, is for the use of the buildings, &c. , and is really the profits of
the landlord's stock. In taxing rent, as no distinction would be made
between that part paid for the use of the land, and that paid for the
use of the landlord's stock, a portion of the tax would fall on the
landlord's profits, and would therefore discourage cultivation, unless
the price of raw produce rose. On that land, for the use of which no
rent was paid, a compensation under that name might be given to the
landlord for the use of his buildings. These buildings would not be
erected, nor would raw produce be grown on such land, till the price at
which it sold would not only pay for all the usual outgoings, but also
for this additional one of the tax. This part of the tax does not fall
on the landlord, nor on the farmer, but on the consumer of raw produce.
There can be little doubt, but that if a tax were laid on rent,
landlords would soon find a way to discriminate between that which was
paid to them for the use of the land, and that which was paid for the
use of the buildings, and the improvements which were made by the
landlord's stock. The latter would either be called the rent of house
and buildings, or in all new land taken into cultivation such buildings
and improvements would be made by the tenant, and not by the landlord.
The landlord's capital might indeed be really employed for that purpose;
it might be nominally expended by the tenant, the landlord furnishing
him with the means, either in the shape of a loan, or in the purchase of
an annuity for the duration of the lease. Whether distinguished or not,
there is a real difference between the nature of the compensations which
the landlord receives for these different objects; and it is quite
certain, that a tax on the real rent of land falls wholly on the
landlord, but that a tax on that remuneration which the landlord
receives for the use of his stock expended on the farm, falls on the
consumer of raw produce. If a tax were laid on rent, and no means of
separating the remuneration now paid by the tenant to the landlord under
the name of rent were adopted, the tax, as far as it regarded the rent
on the buildings and other fixtures, would never fall for any length of
time on the landlord, but on the consumer. The capital expended on these
buildings, &c. , must afford the usual profits of stock; but it would
cease to afford this profit on the land last cultivated, if the expenses
of those buildings, &c. did not fall on the tenant; and if they did, the
tenant would then cease to make his usual profits of stock, unless he
could charge them on the consumer.
CHAPTER IX.
TITHES.
Tithes are a tax on the gross produce of the land, and, like taxes on
raw produce, fall wholly on the consumer. They differ from a tax on
rent, inasmuch as they affect land which such a tax would not reach; and
raise the price of raw produce, which that tax e of raw produce, which
that tax would not alter. Lands of the worst quality, as well as of the
best, pay tithes, and exactly in proportion to the quantity of produce
obtained from them; tithes are therefore an equal tax.
If land of the last quality, or that which pays no rent, and which
regulates the price of corn, yield a sufficient quantity to give the
farmer the usual profits of stock, when the price of wheat is 4_l. _ per
quarter, the price must rise to 4_l. _ 8_s. _ before the same profits can
be obtained after the tithes are imposed, because for every quarter of
wheat the cultivator must pay eight shillings to the church.
The only difference between tithes and taxes on raw produce, is, that
one is a variable money tax, the other a fixed money tax. In a
stationary state of society, where there is neither increased nor
diminished facility of producing corn, they will be precisely the same
in their effects; for in such a state corn will be at an invariable
price, and the tax will therefore be also invariable. In either a
retrograde state, or in a state in which great improvements are made in
agriculture, and where consequently raw produce will fall in value
comparatively with other things, tithes will be a lighter tax than a
permanent money tax; for if the price of corn should fall from 4_l. _ to
3_l. _, the tax would fall from eight to six shillings. In a progressive
state of society, yet without any marked improvements in agriculture,
the price of corn would rise, and tithes would be a heavier tax than a
permanent money tax. If corn rose from 4_l. _ to 5_l. _, the tithes on
the same land would advance from eight to ten shillings.
Neither tithes nor a money tax will affect the money rent of landlords,
but both will materially affect corn rents. We have already observed how
a money tax operates on corn rents, and it is equally evident that a
similar effect would be produced by tithes. If the lands, No. 1, 2, 3,
respectively produced 180, 170, and 160 quarters, the rents might be on
No. 1, twenty quarters, and on No. 2, ten quarters; but they would no
longer preserve that proportion after the payment of tithes: for if a
tenth be taken from each, the remaining produce will be 162, 153, 144,
and consequently the corn rent of No. 1 will be reduced to eighteen, and
that of No. 2 to nine quarters. But the price of corn would rise from
4_l. _ to 4_l. _ 8_s. _ 10-2/3_d. _; for nine quarters are to 4_l. _ as ten
quarters to 4_l. _ 8_s. _ 10-2/3_d. _, and consequently the money rent
would continue unaltered; for on No. 1 it would be 80_l. _, and on No. 2,
40_l. _
The chief objection against tithes is, that they are not a permanent and
fixed tax, but increase in value, in proportion as the difficulty of
producing corn increases. If those difficulties should make the price of
corn 4_l. _ the tax is 8_s. _, if they should increase it to 5_l.
