The subject of taxes is so closely connected with every branch of political oeconomy, that I have not been able to avoid anticipating a subject, which, according to my plan, is left for the conclusion of this work.
What has been hitherto introduced concerning taxation, in treating of industry, trade, money, credit, and debts, relates principally to the effects of taxes upon circulation, prices, and several other things relatively to those subjects.
What therefore remains, not as yet touched upon, chiefly concerns the principles which determine the nature of every tax, relatively to the interest it is intended to affect.
To investigate the different consequences of taxes when imposed upon possessions, and when upon consumption, are questions which relate directly to the principles of taxation. But in this book I shall also have occasion to trace out, farther than as yet I have done, certain combinations concerning the effects which taxes have in multiplying the fund of circulation: and as the augmentation of taxes tends greatly to increase money, I am thence led to examine, how far the advantage gained by the suppression of taxes may not be more than compensated to a nation, by the inconveniences proceeding from so great a diminution of circulation.
Taxes have all along been supposed to enhance the price of living; we shall therefore have an opportunity of investigating the proper extent to be allowed to that general proposition.
Taxes have been established in all ages of the world, under different names of tribute, tithe, tally, impost, duty, gabel, custom, subsidy, excise; and many others needless to recapitulate, and foreign to my subject to examine.
Though in every species of this voluminous category, there are certain characteristic differences; yet one principle prevails in all, upon which the definition may be founded.
I understand therefore by tax, in its most general acceptation, a certain contribution of fruits, service, or money, imposed upon the individuals of a state, by the act or consent of the legislature, in order to defray the expences of government.
This definition may, I think, include, in general, all kinds of burdens which can possibly be imposed. By fruits are understood either those of the earth, of animals, or of man himself. By service, whatever man can either by labour or ingenuity produce, while he himself remains free. And under money is comprehended the equivalent given for what may be exacted in the other two ways.
I have no occasion to consider the nature of such taxes as are not in use in our days. Tributes of slaves from conquered nations are as little known in our times, as contributions of subsistence from the subjects of the state.
I divide, therefore, modern taxes into three classes. 1. Those upon alienation, which I call proportional: 2. Those upon possessions, which I call cumulative or arbitrary: and 3. Those exacted in service, which I call personal. These terms must now be fully explained, that I may use them hereafter without being misunderstood.
A proportional tax presents a simple notion.
It is paid by the buyer, who intends to consume, at the time of the consumption, while the balance of wealth is turning against him; and is consolidated with the price of the commodity.
Examples of this tax are all excises, customs, stamp-duties, postage, coinage, and the like.
By this definition, two requisites are necessary for fixing the tax upon any one: first, he must be a buyer; secondly, he must be a consumer. Let this be retained.
A cumulative or arbitrary tax, presents various ideas at first sight, and cannot well be defined until the nature of it has been illustrated by examples.
It may be known, 1mo, By the intention of it; which is to affect the possessor in such a manner as to make it difficult for him to augment his income, in proportion to the tax he pays.
2do, By the object, when instead of being laid upon any determinate piece of labour or consumption, it is made to affect past and not present gains.
3tio, By the circumstances under which it is levied, which imply no transition of property from hand to hand, nor any change in the balance of wealth between individuals.
Examples of cumulative taxes are land-taxes, poll-taxes, window-taxes, duties upon coaches and servants, that upon industrie, in France, and many others.
A personal tax is known by its affecting the person, not the purse of those who are laid under it. Examples of it are the corvée, in France; the six days labour on the high roads, and the militia service before pay was allowed, in England[38].
38. The corvée in France is the personal service of all the labouring classes, for carrying on public works. Were they paid for in money, it is computed they would amount to no more than 1 200 000 livres a year. This tax was omitted in the account of the French revenue.
Having thus explained what I mean by proportional, cumulative, and personal taxes, it is proper to observe, that however different they may prove in their effects and consequences, they all agree in this, that they ought to impair the fruits and not the fund; the expences of the person taxed, not the savings; the services, not the persons of those who do them.
This holds true in every denomination of taxes. In former days, when annual tributes of slaves were paid, and even at present among the Turks, where it is customary to recruit the seraglios of great men by such contributions, I consider the young women who are sent, as part of the fruits of the people who send them. This is a fundamental principle in taxation; and therefore public contributions, which necessarily imply a diminution of any capital, cannot properly be ranged under the head of taxes. Thus when the Dutch contributed, not many years ago, the hundredth part of their property towards the service of the state, I cannot properly consider that in the light of a tax: it was indeed a most public spirited contribution, and did more honour to that people, from the fidelity with which it was made, than any thing of the kind ever boasted of by a modern society.
Whatever exists for the use of man, so far as it is considered as a fund for taxation, may be classed under the following heads: 1. The produce or fruits of the earth; 2. the produce of the industry of man; or 3. his personal service. Farther,
Fruits cannot be obtained without the necessary labour of man and cattle. As this labour presupposes all the necessary consumption of maintenance, &c. the produce of the land must be understood, with regard to taxes, to be that part of the fruits only which remains after deducting an equivalent for all necessary expences in making the earth produce them. The net produce alone of the earth is to be considered as a fund liable to taxation; and every contribution which bears not a just proportion to that quantity, is wrong imposed, as shall be shewn as we go along.
Again, as to the produce of work: this cannot be brought into existence without some expence, viz. the maintenance of the workman; that is to say, his food, raiment, fire, lodging, and the expence he is at for tools, and every other necessary. This we shall, for the future, call his physical-necessary. The value of the work, over and above an equivalent for these articles, is the only fund to be taxed with regard to the workman.
As to work itself, we have seen above (Book II. chap. 26.) in the general distribution of things which may be purchased with money, how it was ranged under the class of things incorporeal. For that reason, the work performed cannot come under taxation; and therefore the person working, who by work acquires a balance in his favour, is brought to be affected by proportional taxes upon the articles of his consumption; and when it is found that these articles suffer no alienation before they are consumed by him, and consequently escape taxation, then he may either be laid under the cumulative taxes, which will affect his wealth, or under the personal, which are paid in work itself, and in that respect may be considered as the fruit of the man.
Nothing would be so easy as a general rule for imposing proportional taxes, did the labourers of the ground actually consume a part of the fruits of the earth, and the other industrious classes a part of their own work, in lieu of this physical-necessary. In that case, nothing but what remained of fruits and work, not already consumed by the immediate producers, would come to market for the use of those who do not work; but who have an equivalent to give for it, out of the produce of past industry. Were that, I say, the case, then at the time of alienation (or, as we expressed it in the 26th chapter of the second book, at the time when the balance of wealth is going to turn in favour of the industrious, against the idle consumer) a tax proportional to the value of the alienation might, with the greatest propriety, be imposed, as we shall presently discover.
This, I hope, will recall to mind the principles deduced in the chapter above cited, where we made it appear, how the industrious classes, who furnish consumable commodities for the price of their overplus, must constantly have the balance of wealth turning in their favour: and when once they arrive at a certain degree of ease, proportional to their ambition, then they give over working, and become incorporated into the class of those who have enriched them.
Thus matters go on in a perpetual circle. The industrious become easy, and the public lays the consumers under a perpetual contribution in proportion to their expence.
The hypothesis we have made, is not entirely agreeable to matter of fact; because the operation of taxes is far more complex than we have described it to be; but by simplifying it, as I have done, it serves to give an idea of the result, or general consequence of proportional taxes, which, when properly imposed, do affect the idle only, but never the industrious.
Were, I say, the operation of taxation as simple as we have represented it, nothing would be more easy than to deduce its principles. Nothing would come to be refunded to the labourer or workman, at the sale of his surplus. This surplus would be equal to the whole produce of the earth, and whole industry of the country, deducting the physical-necessary of all the industrious; and this physical-necessary need not then be deducted; because it is supposed to be consumed in the very production of the surplus, as the aqueous part of sea water is consumed before you can have the salt.
This illustrates what has been said, viz. that the fruits of the earth are only to be reckoned to exist, after deducting the necessary expence of providing them. For though in fact a farmer possesses all his crop after harvest, yet part of it, as to him, is virtually consumed out of his own stock, or that of others who have furnished him food and necessaries all the time it was coming forward: consequently, that part neither belongs to the ground, or to the farmer.
If it be urged still, that the whole must be supposed to exist with regard to the state, I agree to the proposition; but according to our argument, it must not be supposed to exist in favour of the state, to the prejudice of the farmer; for this reason, that the total of the farmer’s expence must be understood to have been taken from the surplus of other people’s industry, and therefore if the crop be supposed to exist with respect to the state, because it is in the farmer’s yard, the surplus of industry which he has consumed must not be supposed to exist in favour of the state, at the same time. But as the farmer is supposed to have paid the tax upon what he has borrowed and consumed, he must draw it back from those who, in their turn, are to consume his crop: and if he draws it back, he cannot be said to pay it, although the state profits of it as much as if he did.
Does it not appear from this analysis, that a state can only take gratuitously and proportionally out of the surplus of fruits and industry? Now what is here called surplus, relatively to the industrious, is the necessary fund of consumption for all the rich and idle; consequently, were the state to diminish any part of the quantity, the idle and the rich would be deprived of a sufficiency: but in regard that those who do not work give money, which is the price of all things, in exchange for what they consume, there the state steps in, and says, we ask nothing of those who have nothing but their physical-necessary, this they have been allowed to take; we take none of their surplus from them, this we allow them to sell to you: but as for you, who do not work, and have in your coffers wherewithal to purchase the labours of your industrious brethren, this labour you shall not profit of, unless you give the state a certain value out of your wealth, in proportion to the work and fruit you are going to consume, although you have contributed nothing towards the production of it.
Hence it appears evident, that without money there could be no tax imposed: for were the state to take their proportion of the real surplus, and dispose of it out of the country, a part of the inhabitants would be starved. But by an equivalent’s being found, quite different from the surplus itself, of no use for subsistence, the whole produce of industry is left for the use of those who have it; the state takes what part of the equivalent they please from the idle; and no body starves, but such as have not money, nor industry, nor the talent of exciting the compassion of the charitable.
By this simple representation of a most complicated operation, I have been able to deduce the capital principle of proportional taxation. If the reasoning be found solid, it may be retained; because we shall have occasion to recur to it, at almost every new combination.
What perplexes our notions in the theory of proportional taxation, is, that the industrious man, instead of bringing his surplus to market, is obliged to bring the whole of his work.
Let me, therefore, suppose him to be creditor upon one part of his work, and proprietor of the other. This will divide it, as it were, into two parts, which I shall call (A) and (B).
(A) represents that part upon which he is creditor, and answers to all the expence he has already been at; that is, to his physical-necessary, as we have called it. This we have said ought to be considered as virtually consumed by the workman, and if a tax be raised upon it, it must not affect him; that is, he must draw it totally back from the person to whom he disposes of it. (B) on the other hand, represents that part of which he is proprietor, to wit, his profit; and therefore may either be taxed or not, as the state shall think it.
If it be taxed in the hands of the industrious man, without suffering an alienation, the tax will be of a cumulative nature. If it be left free to him, and taxed to the person who buys it, it will be of the proportional kind, as we shall see afterwards. Again,
In the first case, it will check the growing wealth of the industrious man; in the second, it will accelerate the dissipation of the buyer.
Taxes, therefore, of the first kind, are proper to be imposed in countries where the state is jealous of growing wealth, as we have observed in the 25th chapter of the second book. If the tax, again, be laid upon the buyer, then the balance turns in favour of the industrious man, in proportion to the full amount of (B), and produces no other effect than to accelerate the dissipation of the buyer.
Let us now take in a new combination.
If, when the work is brought to market and sold, the price shall not exceed the value of the industrious man’s (A), then he is of the class of those we call physical-necessarians, who accumulate no profits. If the price of it be less than (A), he becomes a load upon the state, a bankrupt to those who have fed him upon credit, and will die for want, unless he be supported by charity.
So far with regard to the seller: next as to the buyer.
The buyer appears at market with his money. When he comes there he must give, first, an equivalent for the prime cost of the merchandize; that is, he must refund every expence necessarily incurred in producing it; or he must refund the value of (A). Next, the industrious man has a claim upon him for his profits, viz. his (B). Then comes the state, who claims a part of his wealth, in regard that he is going to purchase what his own industry has not produced. This is the tax; I shall call it (C). This tax will be found of the proportional kind. It will not affect the growing wealth of the seller, but it will accelerate the dissipation of the buyer; and will pull down the scale against him, in favour of the industrious. This is a proper tax, in countries where the state observes the maxim of sharing the wealth of those who dissipate.
Let us now take in another combination. Let us suppose this buyer to be an industrious person, and the thing bought to be a necessary material for the manufacture in which he is employed. Is it not plain, that when the second industrious man comes to market to sell his work, which I also suppose composed of his (A) and his (B), that his (A) is a still more compounded body? It first includes his own physical-necessary, as above: 2. the (A) and (B) of the man from whom he bought the materials: and 3. the (C) which he paid to the state for the liberty of acquiring what he himself had not produced.
Whoever therefore buys from the second industrious man, must, in like manner, refund to him his full (A); he must also pay him his (B); and then he will find the state claiming their (C), as in the former operation.
This being done, let us examine the interests of all parties. The first industrious man has no reason to complain of the tax; because he was paid his necessary expence (A), and also his (B) for his profit; and the state realized the tax at the expence of the second industrious man, who paid it. Now we said that the dissipation of his wealth was accelerated in proportion to the value of what he paid for (C); but as he is none of the idle, and as the thing bought was a material necessary for his manufacture, the second buyer finds himself obliged to refund the whole amount of the first (A), (B), (C); because the sum of them make a part of the second man’s (A). Now it is the refunding of this (C) to the industrious man which is the only circumstance, from which proceeds the rise in the price of commodities, in consequence of proportional taxes. Moreover, the second buyer must pay the second industrious man’s (B), in favour of the balance which is going to turn against him; and last of all, he must pay the second (C), which is the share the state requires of him, in order to accelerate his dissipation.
Now let us observe, that if the commodity bought by the second industrious man, be not necessary for the existence of his manufacture, it cannot enter into his (A), and therefore must be diminished upon his (B); and if his (B) cannot pay it, then he will owe it to some body, and for the future must either abstain from such expences, or leave off working, in favour of those who can live without them.
Let me illustrate all this by an example.
A tanner sells his leather to a shoemaker; the shoemaker in paying the tanner for his leather, pays the tanner’s subsistence and profit, and the tax upon leather.
The man who buys the shoes for his own consumption, refunds all this to the shoemaker, together with his subsistence, profit, and the tax upon shoes; consequently, the price of shoes are raised, only by refunding the taxes paid by the industrious.
But if the shoemaker’s subsistence shall happen to include either tavern expences, or his consumption on idle days, he will not draw these back; because other shoemakers who do not frequent the tavern, and who are not idle, will undersell him: he must therefore take his extraordinary expence out of his profits; and if his profit be not sufficient, he must run in debt to the tavern-keeper.
The extravagance and idleness, therefore, of particular workmen does not check industry, nor raise prices; for these will always be in proportion to demand, and there is no reason why demand should either rise or fall, because a particular workman is extravagant, or consumes a commodity not necessary for his manufacture or subsistence.
From this example there arises a new combination: that in proportion as the industrious do not consume of the produce of their own industry, but come to market with the whole, and then purchase the work of others, they are considered, as to taxes, in the light of idle consumers, who do not work, but purchase with money the fruits of the industry of others. By this operation, the taxable fund is augmented beyond the extent of the general surplus called (B). The reason is plain. Whatever is brought to market is supposed to be surplus, as it may there be bought by the idle, as well as the industrious. The only difference is, that the first do not draw back the tax, and that the second do, as we have already shewn.
From this reasoning we may conclude, that the way to carry proportional taxes to their utmost extent, is to draw all commodities to market, to engage every one to carry thither the whole produce of his industry, and buy whatever he stands in need of.
But which way will you engage either a farmer to sell his crop, and buy subsistence from another; or a shoemaker to sell his own, and buy his neighbour’s shoes? The thing is impracticable; and were it attempted, it would prove an arbitrary proceeding, and a cumulative tax laid upon their industry: a tax which, by the nature of it, they cannot draw back, as we shall presently see, and from this circumstance alone proceeds the whole oppression of it.
Let me next analize the price paid by the last buyer, whom we have called the rich and idle consumer of the manufacture, who can draw nothing back from any body.
Is it not composed of the whole value of the subsistence, of the work, of the profits, of the tax? The whole reimbursement of all former payments and repayments lands upon him. Those who have been at all the expence, appear in the light of his servants and agents, who have only advanced money upon his account.
How absurd, therefore, is it either to say, that all taxes fall ultimately upon land; or as others, for no better reason, pretend, that they fall upon trade. I say, that this category of taxes which I have now been describing, and which I shall still more fully explain in a subsequent chapter, never can either fall upon, or affect any person but the idle; that is to say, the not industrious consumer. If there be found a possibility for any consumer to draw back the tax he has paid, I say he is of the class of the industrious, in one way or other: and I farther say, that such a tax raises the price of the commodity. But by drawing back, I understand, that the repayment is an inseparable consequence of his having paid the tax. I do not, for example, say that a place-man draws back his taxes by the emoluments of his office: but I say a brewer draws back his excise by the sale of his beer.
Let this principle also be retained, that with respect to the consumption of superfluities by the manufacturing classes, they must be considered as being of the class of the rich and idle, as much as the first Duke in England. When therefore the extravagance of the manufacturing classes becomes general, and when the rate of the market can afford them great wages, relatively to the price of necessaries, such profits consolidate into the price of the manufacture, according to the principles laid down in the 10th chapter of the second book. The statesman then must endeavour to create a competition, by introducing fresh and untainted hands into such branches. This will be a sure check upon the industrious, and, if rightly applied, will prevent all frauds, all pretences for the rise of the price of labour on account of taxes: and, if carried to the full extent, will prevent any industrious person from enjoying either a day’s idleness, or the smallest superfluity; except in consequence of his peculiar dexterity, or extrinsic advantages.
I shall not repeat what I have already said concerning the characteristics of this kind of imposition; but after citing some examples, I shall examine it more closely, as to its nature and consequences.
The most familiar examples of it to an Englishman, are tithes, land-tax, window-tax, and poors-rates.
The most familiar examples to a Frenchman, are the Taille, Fourage, and Ustencil, (which go commonly together) also the Capitation, the Dixieme, the Vingtieme, and the Industrie[39].
39. The Taille is properly a land-tax, to which men called noble are not subjected. The reason of which is, that it was originally imposed in lieu of such personal military services as were peculiar to the lower classes.
The Fourage and Ustencil are laid upon all those who pay the taille, and are in proportion to it. The first is appropriated for the subsistence of the cavalry, when they are in quarters; the last for kettles and small utensils for the infantry.
The Capitation is the poll-tax. The Dixiemes and Vingtiemes have been already explained, and tithes are well known to every one.
The Industrie is that imposition arbitrarily laid on by the Intendants of provinces, upon all classes of industrious people, in proportion to their supposed profits in every branch of business.
The nature of all these taxes, is, to affect the possessions, income and profits of every individual, without putting it in their power to draw them back in any way whatever; consequently, such taxes tend very little towards enhancing the price of commodities.
Those who come under such taxes, do not always consider that their past industry, gains, or advantages of fortune, are here intended to suffer a diminution, in favour of the state; for which outgoing they have, perhaps, made no provision.
When people of the lower classes, instead of being subjected to proportional taxes, are laid under such impositions, there results a great inconvenience. They are allowed to receive the whole profit of their industry, which in the former chapter we called their (B), the state however reserving to itself a claim for a part of it: this, instead of being paid gradually, as in a proportional tax, is collected at the end of the year, when they have made no provision for it, and consequently, they are put to distress.
Besides, how hard is it to deprive them of the power of drawing back what they pay? And how ill judged to trust money with those who are supposed only to gain an easy physical-necessary? An equivalent for procuring the articles of ease and luxury, should not be left in the hands of those who are not permitted to enjoy them.
From this we may conclude, 1. That the more such taxes are proportional to the subject taxed, 2. the more evident that proportion appears; and 3. the more frequently and regularly they are levied, the more they will resemble proportional taxes, and the less burden will be found in paying them. Let me illustrate this by some examples.
The stoppage upon a soldier’s pay, either for the invalids, or Chelsea, is a cumulative tax; but the method of levying it gives it all the advantages of one of the proportional kind. 1st, It bears an exact and determinate proportion to the value of his pay. 2dly, This proportion he knows perfectly. And 3tio, Instead of receiving the whole into his own possession, and paying the hospital at the end of the year, it is regularly and gradually retained from him at every payment.
Tithes are a cumulative tax; but they are accompanied with all the three requisites to make them light; although in other respects they are excessively burdensome. 1st, They bear an exact proportion to the crop. 2dly, This proportion is perfectly known. 3dly, Nature, and not the labourer, makes the provision. But they fall upon an improper object: they affect the whole produce of the land, and not the surplus; which last is the only fund that ought to be taxed.
The land-tax in Scotland bears, 1st, a very determinate proportion to the valuation of the land; and has, 2dly, the advantage of being well known to every contributor; so that provision may easily be made for it. But the third requisite is wanting: the proprietor having the public money in his hands, often applies it to private purposes; and when the demand is made upon him, he is put to distress.
The taille, in many provinces of France, bears, first, a very exact proportion to the value of the land[40].
40. This sort of taille is called tariffée; because it is imposed according to a valuation of the land. It is a late improvement; but still is exposed to numberless inconveniences, which are mentioned in the text.
But in the second place, the proportion is entirely unknown to the man who pays it; being nowhere to be seen but in the offices of the intendant and his deputies.
And in the last place, the whole payment comes at once.
What hides, and consequently destroys this proportion, is, that after the distribution is laid on, as in Scotland, at so many shillings in the pound of valuation, the full sum intended to be raised does not come in; either because the intendant has given exemptions to certain parishes, on account of the accidents of sterility, hail, mortality among the cattle, and the like; or because the property of a part of the parish has fallen into the hands of people exempted from the taille; or that others, who were really bound to pay part of it, are become insolvent. The intendant must then make a second, and perhaps a third general distribution of the deficiency upon all the contributors, in the most exact proportion to the first, but yet by their nature impossible to be foreseen. It is for these reasons chiefly that the taille in that kingdom is so grievous.
These second distributions of the tax, 1st, destroy the proportion between the tax and the revenue taxed. 2dly, They make it impossible to judge of the amount of them. And lastly, the demand comes at once, when, perhaps, the money has been otherwise applied.
The French tax upon industry is more grievous still; because none of the three requisites above-mentioned are allowed to operate.
This tax is supposed to be proportional to the profits made upon trade, and other branches of industry, not having the land for their object. All merchants and tradesmen, in cities, and in the country, pay the tax called Industrie; and the reason given for establishing this tax, as I have said in another place, is in order to make every individual in the state contribute to the expence of it, in proportion to the advantages he reaps. Nothing would be more just, could it be put in execution, without doing more hurt to the state, than the revenue drawn from it can do good.
I shall now shew how, in this tax, all the three requisites we have mentioned are wanting.
1mo, By its nature, it can bear no exact proportion to the profits of the industrious man; since nobody but the person taxed can so much as guess at their extent.
2do, It cannot possibly be provided for, as no check can be put upon the imposer, unless so far as general rules are laid down for each class of the industrious; and from these again other inconveniences flow, as shall be observed.
3tio, It comes at once upon poor people, who have been frequently forced to beg for want of employment before the tax-gatherer could make his demand; and those who remain, frequently become beggars before they can comply with it.
I say, that from the general rules laid down for regulating this tax, as to every class, a workman who has a large family to maintain, is no less taxed than one who has no charge but himself: and it will be allowed, I believe, that the profits of one industrious person of the lower classes, is in no country sufficient to pay any considerable tax, and maintain a large family, much less a sickly one. I therefore imagine, that cumulative taxes never should be raised upon such classes of inhabitants as have no income but their personal industry, which is so frequently precarious.
Merchants also ought not to be subjected to any tax upon their industry. They ought to be allowed to accumulate riches as fast as they can: because they employ them for the advancement of industry; and every deduction from their profits is a diminution upon that so useful fund.
When cumulative taxes are laid upon any of the industrious classes, they tend to check growing wealth; and are most familiarly imposed in monarchical states, where riches are apt to excite jealousy, as has been observed.
But as to the class of land proprietors, that is to say, the more wealthy inhabitants, who live upon a revenue already made, the impropriety of cumulative taxes is much less. They are however burdensome, and disagreeable in all cases, and ought to be dispensed with, when the necessary supplies can be made out by proportional taxes, without raising the prices of labour too high for the prosperity of foreign trade.
From the examples I have given of this branch of taxation, I hope the nature of it may be fully understood, and that for the future no inconvenience will arise from my employing the term of cumulative tax. I shall now subjoin its definition.
A cumulative tax, is the accumulation of that return which every individual, who enjoys any superfluity, owes daily to the state, for the advantages he receives by living in the society. As this definition would not have been understood at setting out, I thought it proper, first, to explain the nature of the thing to be defined.
A proportional tax, as I have said, is that which is levied upon the idle consumer, at the time he buys the commodity; and while, by consuming it, the balance of wealth is turning against him, in favour of the seller. This tax is consolidated as it were with the price of the commodity, and must of necessity raise it.
I say, it is levied at the time of buying, and affects the buyer, in consequence of his consumption; because we have seen, that when the commodity is not consumed by the purchaser, then upon a subsequent alienation he is refunded all he paid. I consider him therefore, in that case, not as paying, but as advancing it for another; and while any part of the commodity remains unconsumed, there still remains the equivalent of a proportional part of the tax in the hands of him who advanced it.
I shall now proceed, as in the former chapter, by giving some examples of such impositions; and in examining them, endeavour to shew their nature and consequences.
The most familiar to an Englishman are, excises, customs, malt-tax, stamp-duties, and the like.
To a Frenchman the gabelle, the traittes, the aides, tobacco, &c.[41]
41. The gabelle is a branch of the general farms, and consists of an excise upon salt. The manufacture of the commodity is in the hands of the farmers; and they, for a liberty to sell salt at a certain price, far above the expence of the manufacture, pay to the King an annual revenue of 28 millions of livres.
This I call a proportional tax, relatively to consumers; although in reality no tax-gatherers are employed for the collection of it, contrary to what is the case of all excises; which are never farmed by government to the manufacturers of the commodity taxed.
The traittes, or, as they are otherwise called, the five great farms, were established by Colbert, when he took away a multitude of customs paid upon the transportation of goods from one province to another. They answer very much to our customs, or to the duties of tunnage and poundage, and are let to the farmers general for the sum of 12 millions.
The tobacco is of the same nature with the salt tax. The farmers general have the exclusive privilege of selling it at a price fixed by the King.
For the farm of the tobacco is paid 15 millions. The aides resemble our excises more than those we have mentioned. They consist in duties upon liquors, either brought into towns, or sold by retail in public houses; and upon all articles of food sold in corporations, except grain of every kind, which is free. They comprehend also a multitude of other duties superfluous to enumerate. They are collected by tax-gatherers at the gates of every town, who also have access to all public houses, where retail is laid under additional rates. The aides are farmed at 38 600 000 livres. These were the rates in the farms let in 1755. They have been since augmented in 1762, as has been observed.
In all kinds of this imposition we find the tax regularly reimbursed from hand to hand; it adheres so closely to the commodity, that it becomes as essentially a part of the value, as carriage, packing, and the like incident charges, enter into the prices of goods. It never can affect the industrious person who does not consume; and never can be avoided by him who does. Such taxes therefore necessarily raise the price of the commodity taxed.
Having already pointed out the principal advantages of proportional taxes, which is to throw the whole of the burden upon the rich, whom we have called the idle consumers, the better to distinguish them from the opulent class of the industrious; I must now enumerate the principal inconveniences complained of, from this mode of taxation, and trace out the principles from which they may be ascertained and removed.
The principal inconveniences alledged against proportional taxes may be reduced to three:
1mo, That they have the effect of raising the price of labour, and the produce of industry, and thereby prove hurtful to the prosperity of foreign trade.
2do, That they discourage consumption, by carrying the prices of many things too high for people of a middling rank in life.
3tio, That they are both expensive in the collection, and oppressive, from the many restrictions put upon liberty, in order to prevent frauds.
In analyzing every one of these inconveniences, it will be proper to inquire, how far the conclusions against those taxes are drawn from matter of fact; how far from plausible appearances only; and so far as they are real, not imaginary, to discover the methods of removing them.
As the first inconvenience lies in raising the price of all kinds of labour, and consequently of manufactures, I must distinguish between the consequence of raising prices at home, and of raising them upon articles of exportation; and I must consider the one and the other relatively to the collective body of a state, and not to some few individuals in it.
High prices at home are no discouragement to the industrious, most certainly, however disagreeable they may prove to consumers; and while they stand high, it is a proof that the demand of the consumers does not diminish.
High prices upon goods to be exported, are to be judged of by the proportion they bear to those in other countries.
Now the price of a manufacturer’s wages is not regulated by the price of his subsistence, but by the price at which his manufacture sells in the market. Could a weaver, for example, live upon the air, he would still sell his day’s work according to the value of the manufacture produced by it, when brought to market. As long as he can prevent the effects of the competition of his neighbours, he will carry the price of his work as high as is consistent with the profits of the merchant, who buys it from him in order to bring it to market; and this he will continue to do, until the rate of the market is brought down.
It is therefore the rate of the market for labour and manufactures, and not the price of subsistence, which determines the standard of wages. Were proportional taxes to raise the price of subsistence, and by that circumstance to discourage manufactures, we should see the generality of workmen living with sobriety, depriving themselves of superfluity, confining themselves to the plain but sufficient physical-necessary, working with all the assiduity that a man can support, and still not able to supply the market at the ordinary rates.
When in any country the work of manufacturers, who live luxuriously, and who can afford to be idle some days of the week, and still live upon their wages, finds a ready market, this circumstance alone proves beyond all dispute, that subsistence in that country is not too dear, at least in proportion to the market prices at home; and if taxes on consumption have, in fact, raised the price of necessaries, beyond the former standard, this rise cannot, in fact, discourage industry: it may discourage idleness; and idleness will not be totally rooted out, until people be forced, in one way or other, to give up both superfluity and days of recreation.
People are very apt to draw conclusions from what they think ought to be, according to the particular combinations they form to themselves; and for this reason it is generally thought, because taxes are higher in England than in some other countries, that foreign trade should therefore be hurt by them. But the sloth and idleness of man, and the want of ambition in the lower classes to improve their circumstances, tends more, I suspect, to circumscribe the productions of industry, and thus to raise their price, than any tax upon subsistence which has been hitherto imposed in that kingdom.
The whole of this doctrine is proved by experience, and is confirmed by our natural feelings. Many have been amazed to see how well the manufacturing classes live in years of scarcity, which frequently have the effect of doubling the price of the most necessary articles of subsistence. Are they not found, in bad years, more assiduous in their labour? Do they then frequent ale-houses, as in the years of plenty? Are they found idle one half of the week? Why should a tax laid on by the hand of nature prove such a spur to industry; and another, similar to it in its effect, laid on by the hand of man, produce such hurtful consequences? Were a tract of bad years, I dare not say an increase of taxes, to continue long enough to bring manufacturers to a habit of sobriety and application, a return of plenty, and low prices, would throw into their coffers, what many of them dissipate in riot and prodigality.
Even this conclusion will be too general, if every combination be taken in. Manufacturers there are, who work hard, and live soberly six days of the week, and who at the end find little superfluity, notwithstanding the high price of labour. Alas! they have many mouths to feed, and only two hands to supply the necessaries. This is the fatal competition so much insisted on in the first book, and by which a door is opened to great distress. Either the unmarried gain what the married should, and become extravagant, or the married gain no more than the unmarried can do, and become miserable.
The average between the two ought to determine the rate of wages in every modern society.
The remedies for this unequal competition, flowing from the happy liberty we enjoy, have been considered in another place.
The inconvenience here under examination will not be removed by an abolition of taxes; nor will it increase by the augmentation of them, as long as manufacturers, upon an average, enjoy superfluity and idle days.
Under these circumstances I conclude, that if foreign trade suffers by the high prices of commodities in our markets, the vice does not proceed from our taxes, but from our domestic luxury, which swells demand at home. Were we less luxurious, and more frugal in our management in general, all classes of the industrious, from the retailer down to the lowest manufacturer, would be satisfied with more moderate profits. Let not, therefore, a statesman regulate his conduct upon suppositions, nor conclude any thing from theory, nor from arguments à priori, drawn from the supposed effects of taxes; but let him have recourse to information and experience concerning the real state of the matter.
Let him inquire what are the prices abroad; what are the prices at home; how those who work in exportable commodities live; what superfluities they enjoy; and what days of idleness they indulge in.
If he finds that goods are not exported, because of high prices, while manufacturers are enjoying superfluity, and indulging themselves in idleness, let him multiply hands, and he will reduce them all to their physical-necessary; and by thus augmenting the supply, he will also reduce the prices in his markets at home.
If he wants to reduce prices still lower, in favour of exportation, but finds that he has occasion for the amount of certain taxes, which enhance the value of this physical-necessary, to which he has reduced his industrious classes, then let him grant a bounty upon the quantity exported, more than equivalent to all the taxes paid by those who provide it; and let the people at home continue to pay dearer than strangers, in favour of the state. If you only want to promote exportation by lowering prices, there will be no occasion to lower them universally, any more than there is occasion to put a large plaister over the whole body, to cure a small pimple on a particular part of it.
I have said, that while the rate of the market remains the same, so will the prices of every part of labour and industry, which enters into the composition of the thing brought to market. This is consistent with reason, and experience proves the truth of it; because we do not see wages fluctuate with the price of living. If they do not fluctuate in that proportion, how can we conclude that a rise in the price of subsistence, occasioned by taxes, should raise wages more than when the price is raised by a natural scarcity. It may be answered, that the imposition of a tax gives a general alarm; the effect it must have upon prices is immediately felt; and manufacturers then insist upon an augmentation: whereas, when nature either produces the same, or even a greater effect, people submit to what they think comes from the hand of God, and content themselves with the hopes of better times. I shall allow this argument all its force. But I must observe, that when manufacturers can thus capitulate with their employers, and insist upon an augmentation of their wages, the demand of the market must be greater than the supply from their work. This is the circumstance which raises the price of labour. Let the demand of the market fall, the prices of labour will fall, in spite of all the reasons which ought naturally to make them rise. The workmen will then enter into a hurtful competition, and starve one another, as has been often observed. Let the demand of the market rise, manufacturers may raise their wages in proportion to the rise of the market; they may, in the cheapest years, enjoy the highest wages; drink one half of the week, and laugh at their employer, when he expects they should work for less, in order to swell his profits in the rising market.
I have endeavoured to throw this question into different shapes, the better to apply different principles to it; and upon the whole, I must determine that proportional taxes will,
1mo, Undoubtedly raise the price of every commodity upon which they are properly and immediately imposed; and if they be laid upon bread, and other articles of nourishment, they will directly raise the price of these articles in proportion; but the price of labour will be raised consequentially only, and according to circumstances.
That if taxes be laid upon the day’s labour of a man, they will raise the price of that day’s labour. What I mean by this, is, that if every one who employs a man for a day, were obliged to pay a penny to the state, for a permission to employ him, the employer would charge a penny more at least upon the day’s work performed by the labourer. Were a tax equivalent to it laid on the labourer by the year, it would be of a cumulative and arbitrary nature, and would not raise the price of his wages in proportion; but were it laid upon the workman at a penny a day, and levied daily, in this case, he might raise his wages in proportion. But this is not the practice any where.
2do, The price of subsistence, whether it be influenced or not by the imposition of taxes, does not determine the price of labour. This is regulated by the demand for the work, and the competition among the workmen to be employed in producing it.
3tio, If wages rise beyond the physical-necessary of the workman, they may be brought down by multiplying hands, but never by lowering the price of necessaries; because every man will make a profit of the low price, but will regulate his gain by the rate of demand for his labour.
4to, If, therefore, the price of his physical-necessary be raised upon him by the effect of taxes, he must work the harder to make it up.
5to, If hands increase, after he is reduced to his physical-necessary, the whole class of the manufacturers will be forced to starve.
6to, The increase of hands means no more than the augmentation of the quantity of work produced. If, therefore, the same hands work more than formerly, it is the same thing as if their numbers were increased.
From these positions it seems to result, that whenever it is found that manufacturers enjoy wages more than in proportion to their physical-necessary through the year, reckoned upon the general average of married men and batchelors, the method of reducing them to the proper standard, is either to multiply hands, if you want to reduce prices in your own market, or to augment the price of their physical-necessary, if you incline they should remain the same. When the hands employed are really diligent, and prices still too high, then it may be expedient to increase their numbers, providing they enjoy considerable profits. This will cut them off, and reduce the price of commodities; because it will augment the supply.
When the hands employed are not diligent, the first expedient is to raise the price of their subsistence, by taxing it. By this you never will raise their wages, until the market can afford to give a better price for their work. If, when they are brought to be fully employed, you incline to sink the price of labour universally, you must take off some of the impositions which affect subsistence, and at the same time gradually throw in fresh hands, in order to promote competition, which alone will force them to lower their prices in proportion. The whole delicacy of this operation is to prevent competition from taking place after the industrious are reduced to moderate profits; and to promote competition, or to raise the price of their subsistence, until they be brought to the proper standard. Having insisted so fully upon these principles in the xviiith chapter of the second book, I here refer to it.
1 have said, that the price of work is not regulated by the price of subsistence, but by the price of the market for the work. Now I say, that the price of the market may in a great measure be influenced by the price of subsistence. This is a new combination.
The first proposition is undeniable. The price of the market at all times regulates the price of work; because it regularly makes it fluctuate, in proportion to its own fluctuations. The price, again, of subsistence only influences it; because two circumstances may destroy that influence. A high demand for work will raise the price of wages in years of plenty: a low demand will sink the price of wages in years of scarcity. When therefore it is said, that the price of subsistence influences the rate of markets, we only mean, that the average price of subsistence, when good and bad years are taken together, have a certain influence in regulating prices. But this average price of subsistence cannot every where regulate the value of work, as the average price of a ship’s cargo can regulate the price of every part of it; because the variations there are at too great a distance of time, to be able to compensate one another with respect to all the manufacturing classes of a people.
Could a plan be concerted, either to preserve the price of grain at one uniform standard, or within the limits of 15 or perhaps 20 per cent. at all times; and were this to be executed by the assistance of a tax at one time, and a bounty as it were at another; it would certainly have an admirable effect in every industrious nation. It would in a manner take away the difference between good and bad years. The industrious finding themselves subsisted at all times nearly at the same expence, would not feel those alternate motives to be idle and extravagant at one time, and diligent and sober at another.
I have enlarged so much upon the nature of this first inconvenience proceeding from proportional taxes, that I have left myself very little to say as to the second, which is,
2do, That they discourage consumption, by raising prices too high for people of a middling rank in life.
In answer to this, I must observe, that all the amount of proportional taxes is refunded to the industrious consumer, so far as they are raised on articles necessary for his subsistence; and when he is either idle, or consumes a superfluity, he is classed along with the idle and rich. Now if the rate of market prices be high, relatively to the income of certain individuals, it can only be because the supply of the things they want to consume is not above the proportion of the demand of those who are richer.
If, therefore, the rate of the market affords such profits to manufacturers as to render them idle and luxurious, how can the augmentation of these profits, by the abolition of taxes, and consequent diminution of the price of subsistence, ever diminish the competition of the rich, unless the supply be augmented?
But if the high prices of our own markets cut off the demand of strangers, then every principle laid down in the 10th and 18th chapters of the second book, must be applied to bring them down: and so far as taxes, which are imposed either to supply the exigencies of the state, or to cut off consolidated profits, enjoyed by manufacturers in consequence of our own extravagance, have contributed either to raise them, or to support them when raised, above the foreign standard, a full equivalent, in the way of bounty, must be given for them, in order to bring the exportation price of goods below the level of foreign competition.
I come now to the last inconvenience alleged against proportional taxes, to wit, the expence of collecting them, and the oppression which is a consequence of the many restrictions laid upon liberty, in order to prevent frauds.
As to the expence of collection, it is entirely in proportion to the disposition of the people to defraud the public.
In France, the collecting the branches of cumulative taxes, such as the general receipts, comprehending the taille, poll-tax, &c. costs the state no less than 10 per cent. or two sols in the livre, which is superadded to those impositions, in order to defray that expence. Whereas in England the expence of collecting the excise, administred by commissioners, who act for the public, not by farmers who act for themselves, does not cost above 5l. 12s. 6d. in the 100l.
This matter of fact is sufficient to prove, that excises, when under a proper administration, are not so very expensive in the collection as is generally imagined; and they would still be attended with less expence, were some proper alterations made in the present method of imposing them. This will appear as we go along.
The oppression of levying excises does not, in any proportion, so much affect those who really pay them, as those who only advance them for the consumers.
This distinction which we have already made, will appear well founded, upon examining the complaints which are commonly made against the collectors of this duty.
We have seen that in the taxes upon salt and tobacco in France, there are no duties collected upon the people; the farmers of the salt have all the salt marshes and salt pits assigned to them by the King; no person, not privileged, is allowed to make salt for the consumption of those provinces which are subjected to the Gabelle.
In like manner the distribution and sale of tobacco is exclusively in the hands of the farmers: they buy it either from Great Britain, or from the Dutch at second hand; they manufacture it themselves, and sell it over all France, at the price set upon it by the King; and we saw, that during the last war, they paid thirty millions down for a permission to raise the price of it 10 per cent. during ten years. This price fixed upon the sale of tobacco, answers exactly to what we know under the name of assize, which ought constantly to attend all excises[42]: for want of observing exactly that regulation, the publicans and victuallers in England raised the price of their strong beer one halfpenny per quart, in consequence of an additional duty of three shillings per barrel imposed anno 1761, which is at the rate only of one farthing per quart[43].