When the sale of an exciseable commodity is vested in a company who manufacture it, by exclusive privilege, the whole oppression of collection is avoided; because the company itself then pays the duty, and they draw their reimbursement from proportional profits on the sale of the goods.

This is the greatest advantage of the farm above the public management of a tax.

When excises are levied upon those who manufacture the commodity excised, the oppression of the laws falls upon the manufacturers, although they only advance the tax, and draw it back from the consumers upon the sale of the commodity.

It is greatly for the advantage of every consumer in the kingdom, that no fraud in the collections should pass unobserved; because all the profits arising from frauds belong to the manufacturer, who in reality is the tax-gatherer, as much as the farmers in France, when they sell their salt and tobacco. But as the farmers appear in the light of King’s officers, and that the collectors seem to bear hard on those with whom they live, people foolishly imagine, that were brewers, for example, more gently dealt with, beer would come the cheaper to themselves. This is a mere delusion; because no brewer whatever will sell his beer cheaper than either an assize, or the ordinary rate obliges him to do, let his profit, from frauds, be ever so great, and his address in committing them ever so successful; and the less productive the tax turns out to be, the more the other impositions upon the people must be augmented, in order to make up the deficiency.

If we compare therefore the oppression of excise-laws felt by those who only advance these impositions, with the ease which the consumers find who really pay them, we may judge of the advantages which the proportional taxes have over the cumulative.

The excise, as paid by the brewer, is really of the cumulative kind. The exciseman demands money of him, at a time when no alienation takes place, and perhaps when he is not prepared to make the advance for his customers, who must refund it to him with profit: besides the hopes of being able to defraud is disappointed, and it is always disagreeable to be disappointed in what we either wish or hope.

Were all mankind honest, the inconveniences of levying such taxes would be less; but as that is not the case, methods must be fallen upon to disappoint the intention of committing fraud. The only way to accomplish this, is, to render it difficult and dangerous. While every individual has a liberty to manufacture an exciseable commodity in whatever place he thinks fit to enter for that purpose, when every one has a liberty to sell liquors, which, upon retail only, are subjected to excise (as is the case in France) must not collectors be multiplied in proportion to the occupation which such policy implies? And will not these collectors oppose frauds to frauds, in order to profit by them, at the expence of the merchant or manufacturer? This will sow discord and hatred between two classes of the same society, and thereby the state is hurt. All discord hurts a state, as it does a private family.

It is out of my way to lay down plans for preventing such inconveniences. It would require an intimate knowledge of every circumstance relating to the country for which the remedy is intended.

I shall therefore endeavour only to throw out some useful hints, by mentioning the impositions where the inconveniences in levying are the least; and by comparing these with other impositions, where the oppression in levying appears to be greater, the contrast of circumstances will suggest the principles upon which a plan might be formed.

There are many more frauds and difficulties in collecting excises in the country than in cities, from the number of manufacturers employed in them. It is just so with the aides in France, from the number of retailers. There are very few frauds and little difficulty in gathering the malt-tax; because the object is unwieldy, and the places of manufacture are fewer.

The frauds upon tobacco and salt in France, do not proceed from those who manufacture them, but from those who introduce foreign goods to supply the place of those manufactured by the company. This shews that excises should be made as general as possible over a country; because local exemptions introduce, as it were, a foreign country into the center of a state.

Stamp-duties are seldom defrauded by forging the stamp; but in France, where they extend to almost every deed of alienation, the public is defrauded by private bargains.

Customs are defrauded by the liberty given to trade in every port; and from the want of convenient public magazines, as a proper repository for all goods brought by sea.

It may be said, in general, that frauds are most frequent upon the new establishment of taxes; that those who complain most of the oppression of them, are precisely those who have the least reason for it; and that the cause of their complaint proceeds rather from the inconvenience in paying when they are not prepared, and the disappointment in defrauding, than from any real oppression arising from the laws of excise: the hardships of these laws are owing to the necessity of general rules to prevent frauds; and such rules would be unnecessary, could the liberty of committing frauds be circumscribed.

One very good method of raising proportional taxes, without great expence or oppression, when the situation of a country will admit of it, is to levy no such duties, but at the gates of towns and villages, which in this light appear to be political inclosures. At those gates every produce of the lands, and every manufacture not made in the town, might pay a tax upon coming in; every manufacture made in the town, might pay a tax on going out: all fruits consumed in the country might be free; all manufactures made and consumed in the towns might be free also. If we consider the quantity of exchange between the inhabitants of towns and those of the country, and between town and town; that fund, I believe, would be found sufficient to raise more by proportional taxes than what is raised in any country in Europe.

A second method of diminishing the expence, and also the burden of proportional taxes, is to exact nothing of the manufacturers, but to prohibit the delivery of the manufacture to any one who does not present a permit from the excise office, signifying that the tax has been paid. This is the method observed in the Austrian low countries, where excises are carried to a very great height. There the transporters or carriers of exciseable goods, are formed into a corporation, and none else dare to transport them.

Whoever has seen the execution of those regulations will not be very fond of them; but the inconveniences which occur proceed from the political situation of all those towns, the public debts of which are so enormous, that to pay the interest of them excises have been carried so high as to banish manufacturers into the country, where few excises are levied. It is from the country and many considerable villages, which have not the privilege of running in debt, that the manufactures of that country are carried on. No industrious man can afford to live in the towns of the Austrian Netherlands, except he who supplies their consumption; and in no place, I know of, is work so dear as there.

Were great excises levied upon the furnishers of the goods, as is the case in Great Britain, and were as little restraint laid upon their frauds, those duties would not produce what they do; and the oppression would be intolerable; whereas by the policy established, nothing but the high price of goods is complained of. A third method of avoiding both expence and oppression in levying proportional taxes, would be to confine the fabrication of all articles charged with them to certain places properly inclosed. Were those undertakings few and large, were spacious magazines of all sorts prepared, at the public expence, in all sea-port towns, and surrounded with walls, an entire liberty might be allowed within the inclosures, and no questions would be asked, but on going in and coming out. Under such regulations a state would reap great benefit. 1st, There would be considerable savings in collecting. 2dly, There would be great savings on the number of hands employed in manufacturing: forty men, in a large brew-house, make more beer than an hundred disposed as they are in country villages. This resembles the introduction of machines into manufactures.

The objection from the infringement of liberty is more a pretext, in order to facilitate fraud, than any thing else. Are not those who manufacture exciseable commodities, the servants of the state? Are they not even the collectors of the public revenue? With what face then can they pretend to be indulged in the means of defrauding their customers of those taxes which they wish to put into their own pockets, by withholding them from the public. Has liberty any other meaning, but an entire permission to do whatever is not forbid by general and wholesome laws, calculated for the universal good of the society; and shall this class of men, who are enriching themselves as much by the profits they have in advancing the taxes, as by their industry, be considered in as favourable a light as another who is paying a cumulative tax out of his income, one farthing of which he never can draw back?

If any should misinterpret the doctrine of this chapter, I must put them in mind of my original plan, which was to keep constantly in view those virtuous statesmen who think of nothing but the good of their subjects. Taxes and impositions in their hands, are the wealth of the father of the family; who therewith feeds, clothes, provides for, and defends every one within his house. The increase of taxes on this supposition is national oeconomy, as shall be afterwards shewn; frauds are the thefts of servants impairing the public good, and particularly the means o£ self-defence against the incroachments of ambitious neighbours.

As it is the duty of every statesman to make his people happy and flourishing, perhaps the speculations of one whose only interest in throwing them upon paper is to fill up his leisure agreeably, may some time or other tend to promote so glorious a purpose.

CHAP. VI.
Cumulative and proportional Taxes compared with one another, and farther examined.

After examining separately the nature and effects of cumulative and proportional taxes, it remains, for the more fully understanding this subject, to take a view of them together; the better to find out wherein they really differ, and how far the difference is only apparent.

It has been observed, that the payment of taxes diminishes no part of the produce of either land, or industry; the whole amount of these remains entire to the subjects of the state.

The taxes are paid out of the money which circulates in the alienation of them: from which we have concluded that they must constantly be confined within a certain proportion to alienation. We have also observed, that the imposition of taxes augments the mass of circulation, and makes it requisite for a statesman to contrive some method of increasing money in proportion to their increase. I hope these propositions have acquired an additional confirmation, from what has been already said in the preceeding chapters.

We have also seen how the amount of proportional taxes is ultimately taken from the superfluity of the rich, whom we have called the idle consumers: and how they are advanced by one set of the industrious, and refunded by another, until at last they fall upon those who cannot draw them back from any body. These last have been said to pay the taxes, the others only to advance them.

If therefore we suppose all desire of defrauding out of the way, we shall find the whole burden of proportional taxes confined to the inconvenience of advancing their amount by the industrious, and to the payment of them by the rich, which proportionally diminishes their income. Where credit therefore is well established, where payments are regularly made by buyers to sellers, and where people proportion their expence to their free income, the weight of proportional taxes will be very small. I appeal to experience for the truth of this.

Let us next examine the nature of cumulative taxes, as we have called them, in order to distinguish them from the others.

In these, alienation is not necessary at the time they are paid; from which it follows, that, in many cases, they cannot be drawn back. When a man pays his land-tax out of his rent, what remains to him will not buy more of any thing than if he had paid nothing. Nay, were the state to indulge him and take his tax in corn, the corn which remains to him would not bear an advanced price, unless the state should export the quantity he had given; and then indeed, by diminishing the supply, it might raise the price of grain in general; but every one having grain to sell would profit of the rise upon the price, as well as the landlord, whose share does not commonly amount to one third of the crop.

But were a tax laid on in so regular a proportion to the value of any property, as to prevent the proprietor from making use of that part which the public intends to take from him, those who pay cumulative taxes would thereby acquire one very great alleviation of their burden.

I have said that when a brewer pays the excise, the tax, as to him, is of the cumulative nature. It is so in a certain degree, no doubt, as may be seen without farther explanation; but it still so far retains its own nature as to be easily drawn back from the consumer. But how can a soldier draw back the tax he pays to Chelsea?

From this material distinction between the two impositions, I conclude, that no objection can lie against proportional taxes, so far as they affect the industrious; because they draw them compleatly back: and that great objections lie against cumulative taxes, when they affect the industrious, because they cannot draw them back; and consequently, they may affect the physical-necessary of the contributor, in case no profit should remain to him upon his labour. On the other hand, I think little objection can be made to cumulative taxes, when they are imposed upon possessions, which produce a visible annual revenue, clear to the proprietor. This is the nature of the dixiemes and vingtiemes in France; where the whole amount of the person’s income is taken upon proper proof, and taxed in proportion to it, without any subsidiary or second levy’s taking place, to make up a determinate sum.

Cumulative taxes would also be far less burdensome to the lower class, could they be levied, so as, first, to preserve the proportion of them to the actual profits on industry: secondly, to make that proportion sensible to the people: and in the last place, to retain the tax, instead of allowing them first to receive it, and afterwards obliging them to refund it.

In proportion as these three requisites do not take place, such taxes become grievous to all who have no fixed income.

To put a tax upon a man’s dwelling house, in proportion to its windows, or hearths, when the house produces no fixed income to him, and when he has none independent of it, may take away a part of his physical-necessary. To put a tax upon him because he has a head, is more grievous than to put a tax upon his hands, in proportion to what they daily gain.

If cumulative and proportional taxes be compared, with respect to the different effects they are found to have upon our opinions as to taxes in general, we find that both of them deceive the contributors, but in different ways.

In the cumulative taxes, the person who pays does not always perceive the reason of his paying. He imagines that he is taxed only because it is known that he is able to pay a certain sum.

In the proportional, the deceit is of another nature. When a person buys a consumable commodity, which has paid an excise, he does not perceive that the price he pays for it comprehends a tax upon his past gains, in favour of the public; but he concludes the whole to be necessary, in order to procure what he has an inclination to consume. An example will make this plain.

Suppose a tax laid upon wheel carriages, and that every person in the state were liable to pay a certain sum in proportion to the number of carriages he has for his convenience. The tax-gatherer comes at the end of the year and demands the sum. The person complains that he is not at liberty to have a coach or a chaise without paying duty for it; and that while he has occasion for one carriage only, and has but one pair of horses, he is obliged to pay for several sets of wheels.

Now, suppose this cumulative tax were turned into a proportional one, and that wheels were to pay a stamp-duty, or the like, in the hands of the wheelwright. The price would immediately rise; but this rise would soon become familiar to the man who has the carriage; and he would then be no more hurt by this additional expence, than if it had proceeded from some new and expensive fashion of wheels: in short, wheels would generally begin to bear an advanced price, and very soon no body would inquire how it came about, nor once complain of the tax.

To set this in another light, the difference between the two impositions resembles that between long and short accounts, which to poor people is very great. When the expence of living is insensibly and universally augmented, by the effect of proportional taxes, then the industrious man, who enjoys neither superfluity or idleness, may and can augment the price of his work in proportion. This augmentation forms then a part of what has been called his (A), which he draws fully back when he comes to market. But if the same, or even a less sum be raised upon him by a cumulative tax, it comes upon him at the end of the year, or at the end of the quarter, and let him be ever so provident, he cannot draw it back, or raise the price of his work, because of the unequal competition of other people of his own class, who, from a variety of circumstances, cannot all be so equally loaded by the cumulative as by the proportional taxes. Besides, they may not be so provident as himself, and may work for subsistence, without making any allowance for what they are to pay the state at the end of the year. Thus a double inconvenience ensues. The industrious poor are oppressed by the tax-gatherers, and the tax is ill levied. In the other case, the first never see a tax-gatherer, and the money is paid. Besides these advantages in favour of proportional taxes, there is still another, that if this tax be improperly laid on, the defect will manifest itself by checking consumption only; whereas in the other case, it will be known by the distress of individuals.

If the liberty not to consume be taken away, as in the gabelle in some provinces in France, then the imposition changes its nature and becomes a cumulative tax, as may be easily perceived^[44].

It has been said, that so far as the three inconveniences of the cumulative taxes can be prevented, they cease to be oppressive. From which we see the reason why excises are so easily paid when those who manufacture the commodities charged with them, are contented to compound for them. This changes the tax into one of the cumulative kind; but gives it every requisite to make it easy. Let me take an example.

A brewer who pays excise for all he brews, is exposed to the daily visit of the excise-man, to whom he pays the duty. Here the brewer’s imposition participates of several of the inconveniences attending cumulative taxes. But let me suppose that after a certain time he finds that 100l. is the annual amount of his excise. If he makes a composition for it at that rate, he comes under a regular cumulative composition, with every advantage. He thinks no more of frauds; he no more grudges what he pays; and becomes in a manner collector of that imperceptible duty paid by all his customers.

The easy method of transforming those taxes into one another, shews their resemblance sufficiently, and the differences which we have pointed out, shew the principles which regulate the proper manner of imposing them.

We have now seen the objects affected by taxes, and the inconveniences which result to those who are obliged to pay them.

It comes next to be examined, whether or not taxes of all kinds be a great load upon a people, a grievous infringement of their liberty, a means of bringing many honest and industrious people to great distress, and a great discouragement to marriage. I answer without hesitation, that taxes may be, and most commonly are accompanied with all these and many more inconveniences; but I must add, that they proceed from the abuse, and not from the nature of taxes.

In my inquiries, I have constantly in my eye, how man may be governed, and never how he is governed. How a righteous and intelligent statesman may restrain the liberty of individuals, in order to promote the common good; never how an ignorant and unrighteous statesman may destroy public liberty, for the sake of individuals.

Raising money by taxes must always be burdensome, less or more, to those who pay it; and the advantages resulting from taxes can only proceed from the right application of the money when raised.

When individuals only make a profit of the inconvenience of taxes, the public loses, no doubt; because they are paid for the advantage of the public, not for that of private people. If the money raised be more beneficially employed by the state, than it would have been by those who have contributed it, then I say the public has gained, in consequence of the burden laid upon individuals; consequently, the statesman has done his duty, both in imposing the taxes, and in rightly expending them.

Taxes, in this last view, may be considered as a saving out of every private fortune, in order to procure a public fund to be expended for the public benefit.

I have frequently recourse to the familiar examples of private oeconomy, in order to make applications from it to the political; which, however different it may appear, will be found easily deducible from the same principles.

Let me suppose two persons, (A) and (B), living in the same neighbourhood, of the same rank and fortune, enjoying great superfluity, but spending yearly the whole of their income in different ways.

Let the income of both be supposed to be 2100l. sterling; and let the branches of their expence be ranged under six different heads. Let (A) be supposed to spend upon the first 100l. on the second 200l. on the third 300l. on the fourth 400l. on the fifth 500l. on the sixth 600l. in all 2100l.

Let us suppose (A) to enjoy in every one an ample sufficiency.

(B), on the other hand, spends upon his first article 1600l. and upon each of the other five, no more than 100l. Here the first article of (B’s) expence is sixteen times greater than any of the rest; and by the supposition, 100l. is supposed to denote an ample sufficiency upon each article.

I come to (A), and I say to him, you disapprove of the extravaganceextravagance of your neighbour (B) upon his first article of expence, where he spends sixteen parts of his income, and where you spend but one; and yet you must allow that upon every other article of his expence, he is a better oeconomist than you. Would it not be for your interest to bring the other articles of your expence down to his standard, without increasing any thing upon your first article, which is already within the compass of what may be called sufficient.

To what purpose, says (A), would you advise me to so strict an oeconomy? And what should I do with so great a saving on my annual income? Be in no pain about that, I shall lay it out for you in discharging your debts; in providing for your children, and giving them a good education; in improving your estate; repairing your house; making up your inclosures; all shall be usefully spent; and out of 600l. a year, you shall have every thing necessary for your family.

Here is the representation of a scheme between a good statesman, and a people whose interest he consults.

After the imposition of taxes, the individuals of a state, whose income is already formed, begin to pay greatly more than they used to do for every thing they consume. A great part of this additional price goes to the public, and is thereby laid out for national purposes. The whole of such expences are thrown into circulation, as much as if the rich proprietors had laid it out upon articles entirely adapted to their own taste.

Is it not evident, that in this way of appropriating the income of a country, it must produce a more extensive encouragement to industry of all kinds, than if the proprietors only had spent it? They never would have thought of becoming merchants, or of setting up manufactures for the supply of foreign markets: their whole expence would have been calculated to supply their own wants; and it would have been indifferent to them whether these were supplied by natives or by strangers.

Let us apply this doctrine to common experience. Let us compare the nature of circulation in a trading town, with that of a country place, where many gentlemen of large fortunes reside. How extensive the objects of the first! how contracted those of the latter!

Let us compare again the exigencies of government, with those of a trading city, what a variety of new wants here occur to be supplied, which the city never could have occasion for?

I have shewn that the great amount of taxes is taken from the income of those individuals whose fortune is already made, or whose daily profits are considerable: I have suggested how circumscribed the expence of this class must be, when considered with respect to the employment it procures to the body of a people. Does not the experience of former ages show how apt private opulence is to sink into treasures, when a taste for industry does not animate the lower classes to create new objects of desire in the wealthy? Wherein is a state benefited by the luxurious gratifications of the rich, unless it be by the employment they procure for those who provide the objects of luxury? Those very gratifications are, in one sense, taxes upon the rich in favour of the industrious: they increase expence, and throw money into circulation. In Spain and Portugal, where industry is not introduced among the lower classes, it is the strangers who in effect levy such taxes upon them. Were the taxes they pay, properly applied to the encouragement of the arts, instead of being appropriated to private purposes, and to enriching private men, whose taste for expence is always circumscribed to the objects of their own wants, how soon should we see them vying with us in every market of Europe, and supplying themselves as far as their country is calculated for it.

The reciprocal wants of industrious nations, resemble the reciprocal wants of tradesmen; all may be employed in supplying one another, as well as themselves.

When the amount of taxes is properly laid out in premiums, for the encouragement of the industrious, the prices of labour upon articles of exportation, may be brought so low, that all nations who do not follow the example, must languish and decay. Luxury at home will then cease to hurt the trade of the nation. In her treaties of commerce, she may throw open her ports to many articles of foreign consumption, without running any risk by such allowances; and on the other hand, she will reap the greatest advantages from a reciprocal permission.

The example I have given, by which I have illustrated the nature of public contributions, must not be understood to tally with respect to proportion. It would be both ridiculous and impossible to reduce all the expences of rich men to the purely sufficient. All I meant was, to shew how taxes, when properly applied, may be considered as public oeconomy; and how the levying of them has no direct tendency to hurt a nation in point of ease and prosperity.

One good way to discover the nature of taxes, is, to examine how far it may be possible to carry them. This is my intention in this chapter.

I have said that the object of taxes was income, and not stock. I have shewn how those of the proportional kind affect the income of stock already made, and persons who enjoy large profits upon their daily industry. I have pointed out the impropriety of cumulative taxes, when imposed upon such as draw nothing more from their industry than an easy subsistence; and I have given a general preference to those of the proportional kind; because they constantly imply both alienation and consumption: alienation in those who advance the taxes, consumption in those who pay them.

Could, therefore, taxes be levied upon every alienation, where consumption is implied, and that in proportion to the whole superfluity of those who are to consume, proportional taxes would be carried to their utmost extent.

I shall now analize this subject, in order to discover how far that extent may reach; and by this inquiry, the principles of taxation will be the better understood.

The objects of alienation comprehend all that is in commerce among men, moveable and immoveable.

What is moveable is generally consumable, what is immoveable is generally not so.

As consumption is a requisite, together with alienation, in order to form a proper basis for proportional taxes, we see how contrary to principles it would be, to tax the alienation of lands, houses, &c. in the same proportion as consumable commodities. These are funds, not income; and the money with which they are purchased, must be considered in the light of a fund, while it is in the hands of the buyer. When once it comes into the hands of the seller of the immoveable objects, it frequently, indeed, partakes of the nature of income; that is to say, it is spent in the consumption of fruits, and of the labour of man; and then it will be affected by taxes.

This may suffice to recal to mind the principles we laid down in the 26th chapter of the second book, concerning the effects of the vibration of the balance of wealth between the members of a modern state.

The next thing we are to consider, is the state of circulation. As to that, we have frequently observed, how it must be in proportion to alienation.

This proportion is not determined by the value, or denominations of the money circulating; but by that value combined with the frequency of transitions from hand to hand; as the force of a cannon ball is estimated by the weight of the ball, and the swiftness of the motion at the time it strikes.

Let us now lay aside the consideration of immoveable property; and examine the nature of consumption, alienation, and sale, with respect to other things.

Consumption comprehends every thing produced by the earth, or by man; alienation is confined to that part which is exchanged between men; and sale to that part of alienation which is exchanged for an equivalent in money.

Whatever part is consumed without alienation, ought, I think, to be out of the reach of proportional taxes, unless, by some circumstance or other, it can be made to fall under the eye of the public, in a manner resembling its coming to market. Thus a tax upon malt is levied at the malt-house, as if it were sold to the maltster, although it be made for the consumption of the grower of the barley. In like manner, a tax upon corn for bread may be levied either at the mill where it is ground, or at the oven where it is baked^[45].

The worst kind of proportional taxes are those which are levied upon private manufacturing, and upon unmanufactured consumption, where no alienation takes place. An example of the first we have in the excise upon malt, cyder, candles, &c. made in private houses for private use: the last is known in Holland, where a man cannot kill his own pig, or his own calf, without paying a tax. Were taxes of that nature extended to the making of bread, cooking of victuals, &c. I apprehend they would become of a nature more burdensome than any hitherto invented, unless public cooks were established, as public ovens are in many parts of France; in such cases, taxes might be levied upon every part of consumption.

Investigations of this nature are so disagreeable, that it is with reluctance I mention them; but when, in fact, such taxes are found established in different countries, it is highly proper, that the nature of them should be inquired into.

Taxes in Holland are so multiplied, as to descend to this category, in many places, as we have seen by the example just given; but even these, however oppressive they may appear to those who are not accustomed to them, are still less so than many of the cumulative kind we have mentioned, particularly the tax upon industry and the capitation in France. They approach nearer to proportional taxes, and derive every alleviation of their burden from that circumstance. He who pays such taxes, sees that he can avoid them, by retrenching his consumption; and when they fall upon the necessaries of life, he may draw them back, providing he be an industrious man, and that every one who enters into competition with him for employment, be equally subjected to the same burden. But they are more burdensome than those where sale takes place; because when a poor man, who wishes to consume, wants money, he considers himself in the same light as if the thing were not to be sold; but when he has that which he has acquired by his labour, and cannot consume it for want of money to pay for a permission, as it were, he must either starve for hunger in the midst of plenty, or be reduced, perhaps, to beggary, for having preserved his life by defrauding the tax.

What has been said, is, I think, sufficient to shew the varieties which occur, when taxes are imposed upon bare consumption, where no alienation takes place: they must, in every respect, be ranged under those of the proportional kind, although some principal requisites be wanting to engage any one to approve of their institution.

It appears still more difficult to establish a proportional tax upon barter, or the exchange of commodities one for another, unless sale be understood. This would be the case were a private person, not subject to the excise upon malt made in his own house, to pay in that commodity. He would not there escape the imputation of fraud; and might, with propriety, be considered as a retailer. I do not, however, doubt but examples of taxes upon barter might be found; some even occur to myself; but they are almost too trifling to mention^[46].

The last and principal requisite, to render proportional taxes easy and light, is sale. There the burden must be proportional to the buyers purse; and if it prevents the consumption of the thing taxed, the defect will manifest itself.

Of these taxes we may say, that they are in proportion to circulation; and accordingly, we see how difficult it was to raise them, so long as circulation remained confined to the small quantity of coin in the country. As money increased, both by the increase of trade and alienations, they became more productive; and were the nature of them rightly understood, and were they properly imposed, they would soon be more generally adopted.

In treating of public credit, I have said that it is the duty of a statesman to augment the quantity of money, in proportion as he intends to multiply taxes on his people. I shall now, before I conclude this chapter, explain the meaning of what was there thrown out relatively to another subject.

The money of a country, we have said, bears no determinate proportion to circulation; it is the money circulating, multiplied by the number of transitions from hand to hand. Again, we have said, that the prices of all things are determined by demand and competition. The meaning of this, as it concerns the present question, is, that in proportion to the competition of those who appear with money, in order to acquire what comes to market, a larger or a smaller sum is brought into circulation.

Now, according to the principles laid down in the first chapter, we saw how the full value of the industrious seller’s expence and profit were made up to him in the sale of his work; and if he even advanced any tax upon any part of his work or consumption, that it was refunded to him by the buyer, who, if he consumes in the light of an idle man, pays for the whole.

Farther, when a proportional tax is imposed, we said it was, in a manner, as if the state interposed at the time of alienation, and exacted of the purchaser a certain value in money, in proportion to the commodity, as the price of the permission to acquire what his own industry had not produced. From this I draw the following consequence, that in proportion to the tax an additional sum of money is drawn into circulation, which would otherwise have remained in the pocket of the purchaser; consequently, on imposing proportional taxes, they cannot, at first, exceed that proportion of money which is found in the pockets of the consumers, over and above what they used to pay for what they consumed.

The truth of this proposition is established upon many facts. First, in countries where people keep their money locked up, proportional taxes are very well paid. Hence the great amount of the alcavala and cientos in Spain, which amount together to 14 per cent. upon every consecutive alienation of the commodities, chiefly indeed for the consumption of the rich.

Secondly, When excises were augmented in England, in the reign of King William, Davenant tells us, that the price of the goods excised fell.

Thirdly, When a war has lasted any time in France, taxes cease to be so productive.

Are not all these, and many other appearances, resolved upon the same principle, viz. that taxes must come out of that money which exceeds what was necessary for carrying on alienation before they were imposed?

In Spain they draw money from the chests of the hoarders, and increase circulation for a while.

In England, during King William’s wars, the quantity of money being very small, and trade being very low, the tax upon malt could come out of no other fund than the price usually given for barley.

In France, people are better acquainted with taxes, and the great bulk of excises are administred by the farmers, who never lower their price; so that the diminution of the mass of coin diminishes consumption.

But when methods can be fallen upon to increase money according to the uses found for it, taxes will continue to produce, consumption will not diminish, and circulation will keep pace with them.

Could we suppose, that before the imposition of taxes, every person in a state had laid it down as a rule, to spend the whole of his income, but none of his treasure, in the consumption of what is brought to market, it is plain, that in a luxurious nation, taxes might be carried so high as to draw the last farthing of the treasure into circulation, even though it were supposed to exceed the value which demand had fixed for all that was brought to market. But without a luxurious turn this would not be the case. There are countries abounding with coin, which it is impossible to come at by proportional taxes. The reason is plain: the value which demand fixes upon the total of the articles of consumption exposed to sale in the country, bears but a trifling proportion to the coin which remains locked up. This was the case in ancient Greece. In that case, proportional taxes can never exhaust the treasure; because were they to be made high upon articles of the first necessity, all the poor would starve; if upon articles of superfluity, demand would stop.

Proportional taxes, therefore, can only be raised in proportion to the desire of spending money; and as this desire depends upon the spirit of the people, so must the extent of taxes.

Let me now trace a little the progress of money brought into circulation by proportional taxes in a luxurious nation. I shall call the value, fixed by demand, for all that comes to market (Y). The sum levied in consequence of the alienation of it, or in other words, the sum of the proportional taxes (X). And the whole money of the country (Z). This premised, it will follow, from what has been said, that so soon as all the money of the country is brought into circulation, then (Z) will be exactly equal to the sum of (Y) and (X).

Let us next suppose the whole alienation to be made at once. Will not (Z) then immediately appear divided into (Y) and (X)? What then will become of those two sums which we suppose to enter into circulation at the same time? I answer, that (Y) will go entirely free to the industrious seller: that it is, or should be, nearly equal to the former value of what came to market before taxes were imposed: and that (X) is an additional sum drawn from the idle consumers, who live upon an income already made. But suppose (X) to be augmented, until it exceeds the quantity of money formerly superfluous for carrying on alienation: then I say, that either taxes will become proportionally less productive, or consumers must melt down the capital of their funds into paper money, to the amount of the deficiency of (X); and this will supply circulation with the additional sum required in consequence of the imposition of taxes.

Now, I think, it is a lucky circumstance, that the additional sum of taxes should be paid by those very people who are the best able to borrow it upon their funds.

Let us proceed to examine the progress of (Y) and (X) as they continue in circulation. (Y) is no sooner come into the hands of the industrious seller, but he has occasion to go to market: that moment I consider him as one of the rich; and the money which, at the time he sold, had acquired the denomination of (Y), now resumes that of (Z). When he comes to buy a commodity with what was formerly his (Y), there is immediately a part of it converted into a new (X), and the remainder keeps the denomination of (Y) in the hands of him from whom he buys. By this progress it is plain, that after a certain number of alienations, or transitions from hand to hand, the whole quantity (Y) will be converted into (X).

Experience shews this to be the fact; because the amount of taxes, in a short time, far exceeds the value of all the money of a country.

Let us next follow the progress of (X).

Upon the first alienation of any part of what comes to market for the consumption of the proprietors of (Z), a proportional part of (Z) is transformed into (X), and is carried into the public coffers. Were it there to be locked up, and not thrown back into circulation, it is plain, that in a short time the whole of (Z) would be converted into (X), and would be shut up in the exchequer.

When the amount of taxes, therefore, is sent out of the country in time of war, must not this produce a similar effect? Has not the exporting that amount the same effect with the locking it up, since the one and the other equally take it out of circulation? Does it not then follow, that if more money be not obtained, either by borrowing it back from strangers, or by melting down more solid property, that selling must stop, and (Y) disappear as well as (X). The rich, therefore, must give over buying, and the proprietors of all that comes to market must deal by barter with one another.

How naturally do all these consequences follow one upon the other! and how exactly do they correspond to the principles which run through that part of the last book where we treated of banks and public credit!

Taxes are not raised, at this time, to remain in treasures, but to answer the exigencies of the state. The moment, therefore, that the money arising from them comes out of the public coffers, it loses the character of (X) and resumes that of (Z), in the same manner that (Y) was transformed into (Z), by being brought to market to buy a commodity. This new (Z), as we may call it, no sooner returns into circulation, than it becomes again converted into (Y) and (X), with this difference, however, that what came from the exchequer, so far as it is converted into (X), returns directly into it again.

Hence it follows, that states commonly pay their servants the full of their salaries, and make them refund a part in consequence of cumulative taxes, instead of proportionally diminishing what is due to them. And when the salaries themselves are intended to be laid under poundage, which in fact is an actual diminution of them, they choose that the tax should appear to be a deduction out of what is supposed due; because it seems less arbitrary to impose a tax, than to diminish a salary, without assigning any reason for it; but indeed, besides this reason, it commonly happens, that the particular appropriations and administration of the revenue render that method easier.

With respect to proportional taxes they affect the expences of the state in the same manner as those of individuals; with this difference, as we have said, that the part (X) returns into the exchequer; but the part (Y) is fairly spent by the state, as by the idle consumer.

From what has been said, we may gather the principles which lead to the most extensive establishment of proportional taxes, viz. either to draw by particular regulations, the whole real and gross produce of land and work to market; or at least to bring it under the eye of the state, in consequence of some modification or manufacture performed upon it, as was observed with respect to malt-houses, mills, and public ovens. When, by such contrivances, the whole gross produce falls under taxation, the proportional taxes must be gently laid on, and gradually raised until they begin to interrupt consumption; then they must be diminished for a while, until dissipation increases; a case which will probably happen, as it commonly keeps pace with industry.

If we suppose the rich to set out on a plan of living upon their capitals, instead of living upon their incomes, as we have hitherto supposed, then indeed taxes may augment to a degree not to be estimated. This combination has already found a place in the 26th chapter of the second book, where we examined it with regard to the progress of industry. In that place it was said, that in proportion to credit and industry, it might be possible in the compass of a year, to produce commodities to the value of the whole property of the most extended kingdom. Were that the case, to what a height might not taxes be carried?

(Y) then would represent the whole value of the country, and consequently, (X) would swell in proportion, according to the competition among the inhabitants, to purchase every particular article. Subsistence and necessaries might be taxed low in proportion to the abilities of those of the lower classes; articles of luxury might be taxed in a higher proportion, in order to draw the more into the exchequer.

Were taxes thus carried to their utmost extent, still every person in the state must be left at liberty to save, or to spend the whole, or any part of his stock, or income; which is not the case when cumulative taxes are imposed. Proportional taxes, tho’ carried to their utmost extent, will not deprive an industrious man of his physical-necessary, nor of the reward of his ingenuity, nor of that rank in wealth, to which his birth or expence entitles him^[47].