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SPECULATIONS FROM POLITICAL ECONOMY
By C. B. Clarke, F.R.S.
INTRODUCTION
The following nine articles are "Speculations," by no means altogether
recommendations. They are _from_ Political Economy, i.e. they have
nearly all of them been suggested by considering mere propositions of
Political Economy. Some of them are old, or given me by friends: some
are, I believe, new: these many persons will set aside as unpractical
or impracticable, as that is the approved word by which people indicate
that an idea is new to them. The topics of the nine articles have been
largely taken from those now under political discussion, but they can
hardly be called ephemeral; and, though they do not form a treatise,
they will hardly be called disconnected. As they are speculations, no
trouble has been taken to work out suggestions in detail, or give the
"shillings and pence" correctly.
CONTENTS
1. EFFICIENCY OF LABOUR
2. RECIPROCITY AND RETALIATION
3. UNIVERSAL FREE TRADE
4. THE RANSOM OF THE LAND
5. MAKING THE MOST OF OUR LAND
6. FREE TRADE IN RAILWAYS
7. REFORM IN LAND LAW
8. EQUALISING OF TAXATION
9. WEALTH OF THE NATION
SPECULATIONS _FROM POLITICAL ECONOMY_
1. EFFICIENCY OF LABOUR.
Political economists have not overlooked efficiency of labour: they have
underestimated its importance in the opinion of Edward Wilson, who has
supplied me with the examples and arguments that follow and who has
verbally given me leave to publish as much as I like.
The English workman, especially in a country town of moderate size,
regards capital as unlimited, employment ("work") as limited. A wall six
feet high is to be built along the length of a certain garden: if one
bricklayer is employed, the fewer bricks he lays daily the more days'
employment he will get; if several bricklayers are employed, the fewer
bricks one lays daily the more employment is left for the others. It
thus appears that the more inefficient the labourer is, the better for
himself, his fellow-handicraftsmen, and for "labour" in general: the
more money is drawn from the capitalist.
There is a grain of truth in this view with respect to petty unavoidable
repairs in a narrow locality: but the capital spent on such is as a
drop in the ocean compared with that embarked in a single large work.
Consider the case of the London Building Trade, as practised in the
suburbs on all sides of London. The London bricklayers thoroughly
believe that it is their interest to be inefficient: it is said that
they have a rule that no bricklayer shall ever lay a brick with the
right hand; they have also a rule against "chasing," i.e. that no
bricklayer, whatever his skill, shall lay more than a certain number of
bricks a day; they believe that if the bricklayer laid a larger number
of bricks he would get no more pay for a harder day's work, while the
"work" would afford employment to a smaller number of labourers. Look
however a little further. The speculative builders round London compete
against each other, so that they carry on their trade on ordinary trade
profits. Such a builder is building streets, house after house, each
house costing him £800, and selling for £1000 say; and this, after
paying his interest at the bank, etc., pays him about 10 to 15 per cent
on his own capital embarked. Suppose now that the bricklayers increase
their inefficiency either by a trade rule or by a combination to shorten
the hours of labour. The cost of each house is increased £50 to him:
nothing in the new bricklaying rules or rates affects the purchasers;
the builder estimates that his profits will fall to 5 to 8 per cent on
his capital. He does not care to pursue so risky a business at this rate
of profit; he determines to contract operations. When he goes to his
bank, a branch of one of the gigantic London joint-stock banks, at the
end of the quarter, the manager of the branch comes forward as usual
ready to continue the bank advances; but the builder says simply, "The
building trade is not so good as it was," and declines. The increased
cost of bricklaying has affected all other speculative builders in much
the same way; the consequence is that "gold" accumulates in the branch
banks. The secretaries and managers of the great joint-stock banks do
not let their capital idly accumulate; they buy New Zealand 6 per cents,
or transfer to Frankfort or New York the capital that, but for the rise
in cost of bricklaying, would have gone to the London bricklayers.
In this case it is easy to see that the quantity of work to be done is
not limited. Should the cost of building diminish but a little, the
rate of profit of the builders on their _own_ capital (in many cases not
one-tenth of the capital they employ) will run up to 20 or 30 per cent,
or even more; and at even a 20 per cent profit the bricklayers would
find that a perfect rage for building would set in. Every speculative
builder in the trade would strain his credit to the utmost, and take up
every £100 from his bank that he could induce the bank manager to let
him have.
A second illustration. Forty years ago, on our farm in the south of
England, two men with flails used to begin threshing wheat in the long
barn about 1st November, and used to thresh till 1st April. They
got eight shillings a week with us, but in adjoining counties
seven shillings (and even six) were winter wages. Now the steam
threshing-machine will empty that long barn in two short days' work.
It takes half a dozen men to do the work, and they get about fifteen
shillings a week, though their labour is much shorter and easier than
that of the old flail men. At the same time our farmers now are much
poorer men than they were forty years ago: they have less capital,
they have made for many years past a low rate of profit, and they are
frequently themselves complaining that they cannot afford to pay their
labourers well, and inferring that they should get Protection back
again in some shape or other. The labourers on their part imagine very
generally that their increased wages for less work are due to Mr. Arch
and agitation; that the employers of labour will never pay more than is
wrested from them (this is in large measure true); and that employers
must pay whatever agitators are strong enough to demand (this is wholly
erroneous).
In this case it is evident on the surface that the labourers who thresh
with the steam-thresher are more efficient than the flail-men: their
labour is worth the half-a-crown a day to the employer, and therefore
the employer, however poor, can afford to pay it as he receives it back
with a profit. On the other hand, if the flail-men were raised from
the dead, no farmer would now pay them even eight shillings a week for
threshing; their labour would not be worth even that.
One illustration more. Thirty years ago there were few more wretched
trades than the shoemakers of Northampton. Wages were low, the labour
was severe, the social condition of the workmen was necessarily low
also. The sewing-machine, with some special adaptations to make it sew
leather, increased about sixfold the bootmaking power of a workman. It
is needless to say that the Northampton shoemakers met the introduction
of this machine with the fiercest opposition: they said five-sixths of
their number must be thrown out of employment. The struggle was won by
the machine (as in other cases); shoemakers' wages have ruled 50 to
100 per cent higher ever since, at the same time that the shoemaking
population has largely increased; and the social comforts and character
of the workpeople have improved vastly too. This is an example that has
always puzzled the workmen themselves; but it requires no explanation
after what has been said about the efficiency of labour. The puzzle to
the shoemakers is what becomes of the additional boots and shoes made.
They do not reflect that, even of a necessary of life, only a certain
quantity is used at a certain price. Nothing is more necessary in
London, especially in winter, than coal; but, when coal some years ago
went up to 40s. a ton in London, it was marvellous how people in all
ranks managed to reduce their consumption of coal. Much more in the case
of boots, which will bear the cost of export to remote countries, did
the demand increase as the price fell. A fall of 10 per cent only in the
price of boots would cause every wholesale boot exporter to export on
the largest scale. No doubt the invention of a self-acting machine
which should turn out 1000 pairs of boots an hour at a nominal cost
of workmanship per pair would reduce the shoemakers of Northampton to
idleness and starvation. But in practice it has rarely happened that any
machine has been introduced in any trade that has thus completely choked
the increased demand. It has happened often that the workmen who could
only work the old way, and were not able to take up the new machine,
have been reduced to starvation. Even then, after this generation has
passed away, the new machine-workers have been better off than their
predecessors.
Employers of labour cannot pay as wages more than the labour is worth:
no organisation or rules will make them. But employers may pay a good
deal less than the labour is worth, and often have done so. However
great their profits, there is, according to J. S. Mill, always a tacit
understanding among all employers of labour to pay the minimum the
labourers can be induced to accept. It is only by combination that the
labourers can get the full value of their efficiency. Here Mr. Arch
comes in: I have little doubt that the flail-threshers might, under a
well-managed large trade combination, have got nine shillings a week
instead of eight shillings forty years ago.
But every rise in wages gained by the workmen, unless springing from
or in conjunction with an increase in efficiency, will tell against
themselves; it must increase the price of the article, whether houses,
wheat, or boots; this must diminish the demand for the article, and this
must throw some of the workmen out of employ.
It is difficult to find an example of price of wages which presents
any difficulty of explanation when we apply to it the consideration
of efficiency. If bricklayers were to offer to exert themselves to the
utmost, and do in eight hours the same amount and quality of work they
now do in nine, the speculative builders would doubtless be willing to
give the same wages for eight hours' work that they now give for nine.
In case the labourers by increase in their efficiency are able to get
higher wages, the choice will (in general) lie with them how much of
the increase they take in increased money wages, how much they take in
shortened hours of labour. We thus see how, in an uncivilised community,
owing to the inefficiency of their labour, their whole time and energies
are expended on their hunting, or otherwise providing bare subsistence.
The greater skill of our civilised labourers, working with machines
provided by our science, and profiting by our fixed capital (as our
railway tunnels and embankments), is vastly more efficient: it ensures
the labourers a certainty and regularity of food which the savage does
not enjoy, and provides him a certain margin of leisure beyond what the
inefficient savage labourer can count upon; it also provides the whole
surplus production out of which the intellectual and leisure classes are
supported.
It is to be noted that an increase of efficiency in any industry (and
very largely in the case of industries producing generally essential
utilities) raises real wages in all other industries, and this, whether
the particular trade gains (as we have seen it nearly always do)
or loses, as is conceivable, though rarely occurring. Thus, if the
introduction of a boot-sewing machine lowers the price of boots 50
per cent, this can have no effect in lowering the money wages of farm
labourers; and, as a matter of fact, the fall in cost of boots has
sensibly improved the position of farm labourers. In the same way the
superior efficiency of carriers by railway over the old road carriers
has diminished the cost of coal and all articles (the bulky ones most
sensibly) in all parts of England. There thus arises the instructive
result that handicrafts in which there has been no improvement in the
last forty years have obtained a rise of real wages (amounting in some
cases to 50 per cent) by the improvements in efficiency in all the
trades around them.
To sum up: No man in ordinary business will give a price for anything
that he intends to sell again unless he expects to profit by selling
it again. No capitalist will pay a workman to make a table unless he
expects to sell the table for a sum somewhat exceeding the cost of the
wood and the workman's labour. It follows directly that the one grand
object of the workman, both as an individual, a trade, and a class,
should be to improve the efficiency of his labour. He may gain something
by combination and higgling for the turn of the market, but the limit to
what he can get is the value of his labour to his employer.
In order to attain this improved efficiency the most important
practical aid is piecework. This has done much even in agriculture: the
turnip-hoer by the acre earns more, while he does his work at his own
time with more comfort to himself than the old day-labourer. What
is more important, the men who by head and hand are superior at
turnip-hoeing are able to do the work cheaper than ordinary labourers,
and turnip-hoeing thus falls entirely to the most efficient hoers, whose
efficiency thus again gets constantly improved. There is no doubt to me
that, if the London bricklayers would arrange to work by contract, they
would soon obtain more wages without being compelled (as they imagine
would be the case) to work more severely or longer hours to gain
those wages. If they were more efficient, nothing could prevent the
competition of employers soon giving extra wages for extra value of
work.
But it may, finally, be urged that there is surely such a thing as
over-production. If there is an over-production of boots, trade is flat,
the wholesale dealers find they are making no profit, they stop their
purchases, the workmen are thrown out of employ on a large scale. To
this the reply is that there is almost a necessary alternation of up and
down in every particular trade, whether the efficiency of the workmen
is high or low. If trade is good, the large dealers will extend their
purchases, and very commonly rather over-extend their purchases: a
reaction follows, and _vice versa_ when trade is bad.
But it must be recollected over-production in all trades at once is
impossible: capital is now not buried in pots by our great joint-stock
banks; if one trade is at standstill the capital is carried to the most
remunerative use that the experienced bank secretaries can discover.
If agriculture is, as we have lately seen it, in a depressed state for
years, inasmuch as wheat is "over-produced" in America till the price in
England falls to 36s. per quarter (and less), at which it hardly pays
to produce it in England; this of itself implies an enormous spur to all
other industries--the real cost of labour has in them fallen (for
the labourer will not be able to keep to himself the whole benefit of
cheapened food)--the rate of profit in all other industries has risen
(_pro tanto_). If we ever do arrive at a state when all the desires are
fully satisfied--when there is over-production in all industries--we
shall have general reduction in the hours of labour: "efficiency" will
take that form.
2. RECIPROCITY AND RETALIATION.
The wealth of England is the sum of the wealth of each individual in
England. An individual may have £10,000 in England, £5000 invested in
Australia. We may reckon his wealth in England either as including or
excluding the £5000, which he could transfer (probably very speedily) to
England in gold if he desired it tangibly. Whichever way we reckon his
wealth and that of other individuals, we shall in like manner in the
sum get the wealth of England: it will be in one case the wealth in
England-in the other case the wealth in England plus the lien which
residents in England have on other countries in the world.
In parallel manner the effective capital of England, which can be
brought into the wages fund, must be the sum of the capital of all the
individuals.
These two self-evident truths are capable of many applications: we
see directly from them that the National Debt, so far as it is held by
residents in England, neither diminishes the national wealth nor affects
the wages fund. We see also directly that any exchange between an
Englishman and a foreigner which gives a profit to the Englishman gives
an equal profit to the English nation.
When a merchant buys 1000 quarters of wheat from America and pays in
gold, he does so to make a profit for himself; but he cannot make a
profit for himself without making an equal profit for the nation. The
exchange of the wheat for gold is profitable to both seller and buyer;
otherwise the bargain would not be struck. A value is added to the wheat
by its being brought from Minnesota (where it is wanted, as all good
things are wanted) to London, where it is much more wanted, and this
increased value is greater than the cost of moving the wheat from
Minnesota to London; this excess is the profit on the exchange which
the buyer and seller divide between them. The exact shares in which they
divide the profit between them depend on some of the most complicated
considerations in the science of political economy. Indeed, political
economy can no more work out a case in figures, even when every
circumstance is given, than political economy can tell in pounds
sterling what should be the rent of a given farm. But the point required
for our present purpose is easy and certain,--unless the English buyer
got _some_ share in the profit he would not give his gold for the wheat.
The great principle of Free Trade is that in this, and in all similar
cases, the individual shall be left to make what profit he can; that his
dealings with foreigners shall be interfered with by Government in no
way; that he shall not be checked in his operations by import duties,
bounties on exports, staples, or any other of the numerous obsolete
interferences in the statute-book. The principle is that each individual
can manage his own trade better than Government can manage it for him;
that, therefore, Government shall let any individual do his best in
trade his own way, knowing that whatever profit an individual makes in
foreign trade is an equal national profit.
It may be shortly stated that in the old Protectionist theory, destroyed
by Adam Smith, gold was considered to be wealth. Hence, if an individual
bought foreign wheat for gold, the English suffered a national loss of
wealth, and the foreign nation made a national gain. It is unnecessary
to occupy space in refuting this (to us absurd) idea, as no refutation
can be more satisfactory than Adam Smith's own.
If I profit on the transaction of buying 1000 quarters of wheat for
gold, I do so irrespectively of all other exchanges by others. Whether
the firm next door to me has succeeded in selling to a Boston house
£2000 worth of Sheffield cutlery or no is a matter entirely beside
my bargain. My profit will depend practically on the movements in the
English corn trade: a small rise in the price of wheat at Mark Lane
between the date of my purchasing by cable the wheat in America and my
selling it at Mark Lane, may give me a large profit, or _vice versa_.
But my exchange of gold for the wheat is a separate transaction of
itself: it stands entirely on its own bottom.
It is perfectly true that if my neighbour in Threadneedle Street does
succeed in selling £2000 worth of cutlery to the New Englander, there is
another distinct national profit to England and to America. [Footnote:
I am assuming for simplicity throughout that every exchange made by
private merchants in this foreign trade is a successful speculation; if
in any particular speculation a merchant loses, his country loses the
same amount. As foreign trade, on the whole, is an enormous national
profit, I am justified in sinking the particular cases of loss. It may
be said, "But perhaps all your exchange of gold for wheat is a national
loss": it is evident that when the trade takes this form the merchants
who import foreign corn stop their operations instantly; in practice
they stop them with prescient instinct.] But whether he succeeds
in making a bargain or not, I object to being interfered with by
Government, and prevented making my own little profit. If my neighbour
is practically deprived of his profitable bargain by Government action
on the part of the Americans--if they are Protectionists and believe
that gold is the only National Wealth, and put a heavy duty on
cutlery--if by doing this they prevent an exchange profitable to both
nations--they stop TWO merchants from a profitable stroke of business.
Whether they injure the English merchant or the Bostonian would-be
purchaser of cutlery MOST is (as above explained) very difficult to
prove in any well-ascertained instance, but it is quite certain that the
interference of the American import duty causes a loss to each merchant
and to each nation.
Where now is Reciprocity and where Retaliation? We can no doubt say to
the Americans, "As you have injured us in the matter of cutlery, so will
we injure you by putting a duty on wheat." But it is merely cutting off
one's nose to spite one's face. In the exchange of gold for wheat the
division of the profit on one transaction is uncertain, but in the long
run it is probably about equal between the English and the American
merchants, i.e. between the English and the American nations. (I am
not overlooking the fact that the ultimate benefit to England is cheap
bread; but it is unnecessary in the present argument to follow the food
down the throats of the consumers: the wheat is really worth to the corn
merchants what they can get for it from the consumers.) We cannot stop
the corn trade with America by a duty (or diminish it) without as great
a loss to ourselves (probably a greater) than to them; the retaliation
in putting a duty on corn because the Americans put a duty on cutlery
would be (with our lights) mere spite: it would be as though a farmer
who took one sample of wheat to market and one of barley, should meet a
factor who offered him his price for the wheat, but would not spring to
his price for the barley, and the farmer should thereupon sulkily carry
both his samples home again.
The ideas of Reciprocity and Retaliation are pure relics of the old
Protectionist commercial theory, viz. that there is always a national
loss in parting with gold--that the foreign trade can only be profitable
to England so long as the value of the exports exceeds that of the
imports, so that a continual accumulation of gold may go on.
Now, first, we may meet this with the abstract scientific argument that
there is no character by which gold can be diagnosed as wealth from
steel or broadcloth. Our merchant who buys wheat for gold could buy from
the Americans wheat for cutlery or wheat for broadcloth. The reason he
gives gold for the wheat is merely because he makes a better profit by
giving gold than by giving anything else in exchange for the wheat. The
nation therefore gets a better profit that way too.
Descending a little from this abstract argument, our opponent says,
"If you go on buying wheat for gold, and cannot sell your cutlery and
broadcloth out of the country for gold, you _must_ run out of gold."
But the fact has been proved by many years' experience not so to be: for
many years our imports have been some £150,000,000 sterling more than
our exports, while our stock of gold in the Bank of England (and the
gold in circulation) remain the same from year to year. This is one
of those many things (like the supply of meat to London) which
will regulate itself perfectly and insensibly (without any violent
disturbances in trade or the money market) if Government will only leave
the matter entirely alone. If our stock of gold is at all short our
merchants give a little less per quarter for American wheat; the
trade is checked; the sensibility of the market--the experience of our
corn-traders--is such that the balance is preserved with very slight
oscillations. The refusal of the Americans (enforced by an import duty)
to purchase our cutlery, etc., _does_ partially check the reflux of gold
to this country, and does lower sensibly the price which the Americans
get for their wheat from us. Errors in political economy avenge
themselves--often fearfully--on their perpetrators. But our objector
will still want to have explained to him where the £150,000,000 sterling
required in England annually comes from. It is not essential to, or
indeed any part of, my present argument to explain this; but I will
anticipate matters so far as to say shortly here that this £150,000,000
is, roughly speaking, the interest on English capital invested in
foreign countries paid in cash to the owners resident in England--it is
equivalent to an annual tribute.
Professor Henry Fawcett's _Lectures on Free Trade_ is a sound and
admirable book: it is occupied a good deal with the practical question
why so few foreign nations have adopted Free Trade, and how such foreign
nations are to be converted to the orthodox creed of Adam Smith. But, as
I think, unfortunately Professor Fawcett has in that book used the words
Reciprocity and Retaliation pretty freely. Their mere use is enough to
fortify a French or American Protectionist in his present policy; he
naturally says, "The English Free-traders themselves admit that we are
making money out of them: we take their gold for our wine and wheat; we
refuse to give our gold for their cutlery and broadcloth: those English
have now to come to us whining for Reciprocity; as to their Retaliation
we are not alarmed--we know they _must_ have wheat and _will_ have
wine." I would wish to expunge the words Reciprocity and Retaliation
from the subject, as being words merely suggestive of false views. But
the most fatal course to the adoption of a Free Trade policy by foreign
nations has been our plan of humbling, begging (and indirectly giving a
consideration for) Commercial Treaties. Such a course is enough to (and
does) counterbalance with foreign nations all our theoretical writings
about Free Trade. We go to France and say, "We will let in your wines at
a lower duty provided you do us the favour and give us the advantage of
lowering your duties on English manufactures." I cannot conceive any way
of putting the matter more strongly calculated to convince the French
that we believe we lose by purchasing their wines and gain by selling
them our manufactures.
It appears to me that if we wish to convince Europe and America of the
truth of Free Trade (as understood by our political economists), our
proper course is to adopt Free Trade ourselves FULLY (if the principle
is good for wheat it is good for tea--I shall return to this), and then
to say to foreigners, "See how we prosper under Free Trade." If the
Americans continue to maintain Protectionist duties on our manufactures,
our line of conduct is not to offer to pay them indirectly to relax
those duties, but to say, "You are losing more by your duties than we
are; the proof of the pudding is in the eating." If I believe, as I do,
that the Americans are gaining less wealth under Protection than they
would under Free Trade, I cannot imagine any plan less likely to convert
them to my views than my going to them and saying, "We will give you
£5,000,000 sterling (or some valued political advantage) if you
will alter your mistaken policy." If this course did not confirm the
Americans in the very deepest suspicions that Protection is really
advantageous to them, and that we in our inmost heart think so too, my
ideas of human nature are altogether at fault. But every foreign debate,
whether in France, Germany, or America, on Free Trade, convinces me
that I am not mistaken in the effect which I attribute to our prayers to
every foreign nation to grant us a Commercial Treaty.
3. UNIVERSAL FREE TRADE.
Wheat is now admitted to England free of duty. Tea pays a duty of about
£4,000,000 sterling a year. This is called a duty for revenue, not for
protection. Tea is an article of universal consumption; the tax on it is
open to the objections against a poll tax or hearth tax, viz. that by it
many a poor old woman is taxed as heavily as far richer people; indeed,
owing to the poor consuming the lower-priced teas, they are by the
present duty taxed at a higher rate than those who can afford the more
expensive teas.
The reply in defence of these anomalies is, "We have to raise £4,000,000
sterling by a duty on something; on whatever we put it, it will no doubt
be bad." Granting, however, this for a moment, the onus lies on the
defender of the existing tariff to prove that it is better to raise
the £4,000,000 required from tea than from wheat, or than to raise
£2,000,000 from tea, £2,000,000 from wheat. Mr. Raban, a leading
tea-planter in Assam, has observed that if the duty on tea was replaced
by one on wheat to raise the same gross amount, the pressure on the
English poor would be less; while an encouragement would thus be given
both to tea-planting in India and to agriculture in England. I adduce
this case of the duty on tea merely to bring out strongly the fact that
Free Trade in wheat is not universal Free Trade. I do not recommend that
the duty on tea should be replaced by other duties: I am going to raise
the question whether it should not be replaced by direct taxation.
In the case of tea, the duty can hardly be said to be "protective,"
except so far as by raising the cost of tea it impels English drinkers
to have more free recourse than they otherwise would to other drinks;
but in a large number of cases a duty operates both as a revenue and
as a protective duty. It is a curious fact that the fanners, after
unanimously struggling FOR the duty on wheat because it was a protective
duty, subsequently unanimously struggled for thirty years AGAINST the
malt tax (involving a duty on barley) because it was a revenue duty. As
soon, however, as the malt duty was repealed, they discovered that it
had been a protective duty; barley fell in price (malting samples) about
l2s. a quarter, and has never recovered, nor does any farmer now suppose
it ever will. This is rather a complex case, because on the abolition
of the malt tax an equal tax (in gross amount) was put on beer; and it
might be supposed at first sight that this would not affect the price
of barley. It has in several ways: Firstly, Many brewers now brew common
beer with one-third malt, two-thirds molasses, cane sugar, etc. The tax
being on the beer, Government no longer cares whether it is brewed from
malt or from rubbish, and the consumers grow soon accustomed to the
lowered taste of malt in their beer; Secondly, The admission of foreign
malt and barley without duty has quickened the importation by removing
those restraints and interferences which hamper trade out of all
proportion to their expressed amounts in pounds, shillings, and pence.
In order to establish a Universal Free Trade and to make every port in
England a free port, it would be necessary to raise by direct taxation
about £40,000,000 annually, because the excise on beer, etc., would
have to be abandoned with the Customs duties. We will consider the
possibility of raising this £40,000,000 by direct taxation before we
dilate on the advantages which would follow Universal Free Trade.
Ricardo, at the end of his masterly consideration of the effect of
taxation variously levied, comes to the general conclusion that the
best tax is that which is least in amount. Adam Smith and the older
economists held that one test which a well-devised tax had to satisfy
was that it should take the money from the taxpayer insensibly,
indirectly. Now, all taxes that thus insensibly drain the taxpayers
invariably take more in gross from them than reaches the Government. To
raise £40,000,000 by customs and excise costs about £3,000,000; so
that the people have to pay £43,000,000, while the Government gets
£40,000,000. In direct taxes, as income taxes, property rates, the cost
of collection is very small--about two-pence in the pound. In public
as in private business it is much more economic to look payments in the
face and make them with our eyes open than to let the money slip away
in driblets. Moreover, modern politicians think, in opposition to Adam
Smith, that it has a good moral effect on the body politic to be made
to feel exactly what taxes they pay, so that they cannot help knowing
whenever taxation is increased.
A serious objection to indirect taxation is that it always falls with
unfair weight on the poor, as in the case of tea duties stated above.
It may be urged that the existing duties are (except tea) nearly all on
luxuries, as beer, spirits, tobacco. But the English have drunk beer for
many hundred years; the taste for beer is largely fixed by inheritance;
beer as supplying sustenance in a form that _rapidly_ assists exhausted
nature is, to very many at least, as much a necessary of life as tea is.
Whether we believe tobacco to be injurious or not, we have no right to
impose on an article so very largely consumed a duty which amounts to
taxing the poor out of proportion to the rich.
If all the indirect taxes are removed, the poor (at least down to those
earning £1 a week and upwards) must be made to contribute to direct
taxes. It may be urged against Universal Free Trade that the poor are
so ignorant that they would sooner pay sixteen-pence a week in taxes
indirectly than eightpence directly. This might prove a fatal objection
to carrying out Universal Free Trade at the first attempt; but one of
the objects to be gained by direct taxation is the education of the
people. It may also be urged that the whole political power being now in
the hands of the masses, they are so selfish and unjust that if taxation
is made a plain matter they will put all taxation on the rich and
refuse to pay anything themselves. The reply to this is, If this is your
estimate of the understanding and morality of the masses, you should not
have put the whole political power in their hands.
We are only attempting at present to show that the £40,000,000 sterling
(to replace duties and those parts of the excise which hang on duties)
_could_ be raised by direct taxation: we are not attempting to show
the best way it could be raised by direct taxation; it will be seen
hereafter that a portion of it might perhaps be better raised by a
National Property Rate.
The £40,000,000 would be raised by an income tax of sixteen-pence in the
pound--(I am underestimating safely--about a shilling in the pound would
raise it really),--carried down to £156 a year without any reductions;
while incomes of £1 a week paid eightpence weekly, and incomes of £2 a
week paid twelvepence weekly. In the Crimean War the nation endured an
income tax of sixteen-pence in the pound; it is certain that the nation
is richer now, and better able to bear such a rate.
But this is not the strength of the argument. In the Crimean War England
endured sixteen-pence in the pound _extra_, in addition to all existing
taxes (some of which were raised too), and the capital thus taken from
the people was destroyed (much of it) or dissipated in the Crimea. But
the sixteen-pence in the pound here suggested would be in lieu of an
equal amount of taxes taken off (it would be rather less in amount than
the taxes taken off): the nation therefore, would not feel it at all,
though individuals would feel it in different ways. A poor man would
have eightpence a week deducted from his wages, but he would get his
beer at three-fifths the present price, his tea at two-thirds the
present price, etc. He would soon feel that he gained by the change. The
rich would find that they lost; but that loss would, I believe, be made
up to them over and over again.
First, I believe it is impossible to realise the effect on our trade of
having London, Liverpool, etc., free ports. We possess at present half
the ocean trade of the world: with our ports free, we should get a yet
larger share of the world's trade, and secure it permanently. That is to
say, we should certainly keep it until other nations adopted Universal
Free Trade.
Secondly, The fall in the price of tea, beer, etc., would be more than
the amount of the tax remitted: the freedom of universal manufacture
without any Government interference, the liberty to land tea without
delay, and put it into the market without having to advance the duty,
would cause at once a great activity in the trades, and at the same time
a fall in price. By diminishing the need for middle-men the quality of
the beer, tea, etc., would be raised, and adulteration diminished.
Thirdly, The fall in the price of tea and beer would bring down
the price of all competing drinks: it would at first diminish the
consumption of competing drinks. The cheapening the price of some of
the prime necessaries of life would be to some extent divided between
capital and labour. As in the case of wheat, the labourer would be made
better off, while the profits of capital would be raised. A general and
permanent improvement in all trades would result, except possibly in
those of the tea-dealer and brewer--but I do not think they would lose.
I see no end to the developments from Universal Free Trade: we can only
gain some idea of what they would be by tracing as far as we may what
the results of Free Trade in one article--wheat--have been; and in doing
this we must recollect that before 1846 the quantity of wheat imported
was trifling compared with the present importation.
To this scheme of direct taxation Edward Wilson objects, "Taxation
should fall on expenditure, not on income." It is true that our object
must always be to encourage accumulation, and discourage destruction
of capital (expenditure). Practically, it does not appear that a heavy
income tax diminishes the taste for accumulation in England: it does
increase the tendency of large capitalists to invest their capital out
of England, so as to avoid the State charges on capital in England.
But the capital in England and the quantity of English capital invested
abroad are already so enormous that the "tendency" of an increased
income tax may be disregarded. Lastly, it may be objected, Would the
sixteen-pence income tax levied as you propose (or nearly so) raise
£40,000,000? At the time of the Crimean War each penny in the pound
income tax brought in a million sterling. At the present time, each
penny in the pound income tax brings in nearer two millions sterling,
but the productiveness of the tax is much interfered with by the large
remissions now allowed, and subtractions which take effect just where
the contributors to the tax are most numerous, say from £100 to £300
a year. I therefore reckon that, without remissions, the tax of
sixteen-pence in the pound down to £156 a year would produce about
£30,000,000, and that the tax down to £52 a year would about produce
the rest. The _total_ income that income tax is now levied on is nearly
£600,000,000. We need not be surprised at the productiveness of the
income tax. A man of £10,000 a year pays tax on that. But he has a
steward on £300 a year, he is worth to his firm of lawyers £100 a year,
and so on: these pay income tax on the £300 and the £100 over again.
When the income tax is carried down to incomes on £1 a week, the
tax will be levied on the same income over and over again. Even a
spendthrift with £10,000 a year usually scatters more than he actually
destroys.
Lastly, It has not been overlooked that there is an income tax now: and
if the whole proceeds of the sixteen-pence income tax were used to
fill up the deficiency in customs and excise, then we have to make up a
deficiency equal to the present proceeds of the income tax. This
might be done (to start with) by the National Property Rate now to be
suggested. But the expectation is, that with Universal Free Trade, and
the tremendous stimulus thereby given to commerce and manufacture, the
National Income would rise with a bound, and that in two or three years
a much lower rate than sixteen-pence income tax in the pound would
supply the amount of all the indirect taxes abandoned.
4. THE RANSOM OF THE LAND.
Many people see quite clearly that, the population of England being
25,000,000, the next baby born has a right to one twenty-fifth-millionth
part of the area of England in soil of average fertility. The
arrangements of society by which the laud is partitioned among a limited
class, and the complicated rights sanctioned by law in one plot of
land, are considered of no validity as against the natural right of the
new-born baby. I do not see this theory to be self-evident: on the other
hand the supporters of it always give it as fundamental, axiomatic; they
no doubt presume rightly that the land is limited, and that if one man
holds more than his arithmetical share, he must push out somebody
else from his arithmetical share: while a man who keeps a hundred
pocket-knives does not perceptibly hinder other people having numerous
pocket-knives. Still I do not see how this consideration weighs against
Lord Derby's title to his lands, if the body politic has determined that
on the whole it is best for the community that land should not be held
equally by all, and sanctions by law Lord Derby's monopoly of a large
area. On the theory of the natural right of every infant born to its
arithmetical share, the monopolisers of land are liable to a perpetually
recurring ransom: this can only practically be carried out by a special
National Rate on Real Property (_i.e._ Land, with the houses, mines,
etc., inseparably attached to it), which must be in addition to such
taxes as income tax, succession duty, etc., which land already suffers
equally with trades, professions, offices, and personalty. The local
rates in England exceed £25,000,000 annually; and the ratepayers perhaps
reckon this a large enough ransom. I should remark in passing that one
man with 1000 acres of land does not dispossess any more babies of their
rights than do ten men with 100 acres each. The ransom therefore must
be a strictly level rate: to put a higher rate on large holders, or to
despoil large holders of a portion of their landed property, will be to
work the ransom unfairly. It hence will follow that any heavy ransom is
now impracticable. Of late years some farms have gone out of cultivation
because they will not pay the tithe, land tax, and rates already on
them: to put any heavy ransom on the land would at once throw large
areas in England out of cultivation.
The question of the ransom, therefore, is not so all-important as has
been considered; the rates at present being £25,000,000, it might be
possible to levy an additional national rate of £5,000,000 to keep down
the perpetually upspringing rights of new-born infants, without throwing
land out of cultivation to any sensible extent. The whole question
will lie thus between a total rate of £25,000,000 and £30,000,000. I
am about, however, as a corollary to this subject, to suggest a way of
forming a National Rate Book which probably would not materially alter
the present rating, but which would alter entirely the taking of land
for public purposes, and would effectuate all that is good in the phrase
the Nationalisation of Land.
This phrase is liberally used but rarely defined. Different orators
appear to have quite different ideas as to what it means; and when they
explain what they suppose it to mean, they generally prove that, in the
way they understand it, it would be serious national damage.
It is unnecessary to observe that landlords now (omitting individual
exceptions and idiosyncrasies) expend their best endeavours in getting
the best rent they can for their land. They have no prejudices in favour
of farms of a particular size; a landlord of a farm of 1000 acres would
let it directly in five-acre plots if he could get a better (and equally
certain) gross rent by so doing. "Nationalisation" is often taken to
mean that Government is to buy land and let it out in small plots. But
apart from expense of Government management and objections to Government
interference, we may safely assume that there would be a national loss
by this procedure: the private owner would discover very quickly if he
could make a profit by letting his farms piecemeal.
All Government interference can do to improve the produce of the land is
to abolish all restrictive laws, and to make the general tenure of land
such that every piece of land shall fall into the hands of that man who
is able to make the most of it. The National Rate Book now suggested is
designed to accomplish this end. We will subsequently consider how
it might assist public companies. As the suggested way of getting a
National Rate Book is at first sight rather startling, I would premise
that it is no rash invention of mine; it worked admirably in Attica--as
see Demosthenes or Boeckh.
To make the National Rate Book, each landowner values (with the
magistrate) his land at what price he pleases; the State has the right
to buy the land at any time at that price, plus 33-1/3 per cent for
compulsory purchase. The magistrate sees that each separate house, farm,
and plot is valued separately. No person need prove his title; any man
can value any piece of land, and need not prove himself to be owner,
tenant, or agent; but any piece of land valued by no one would be
claimed as public property.
A man who valued himself unfairly low would not be bought out at once
and dispossessed by Government, unless it happened that during that year
his land was taken up by Government or by a railway company for some
public purpose. The regular course of business would be as follows:--An
owner A would put his house and curtilage in the Rate Book at £1200. The
sycophant B would come to the magistrate, offer £1600 for the property,
and lodge the £1600 with the magistrate. The magistrate then, without
divulging the name of the sycophant, would write to A either to rate his
house at £1600 (paying a fine for so doing), or to take £1600 for it.
If he took the £1600, B would get the property, and Government the
increased rate. If A preferred raising his rateable value to £1600, B
would get the fine, Government would get the increased rate.
_The utmost pressure put upon any owner under this system would be that,
if he would not pay rates on x pounds for his property, he would lie
obliged to take x pounds for the property._
The 33-1/3 per cent for compulsory purchase is illusory, and I have only
put it in the statement of the scheme to meet an objection which I know
to be common (and equally illusory). It is clear that if I know I am
going to get 33-1/3 per cent for compulsory purchase, whether from
Government or a secret sycophant, I shall proportionately undervalue my
property. Thus if I estimate the real value of my house and curtilage at
£1200, and feel that I do not care if I sell at that price, I shall put
it down in the Rate Book at £900. This applies to all owners, so that
the allowance for compulsory sale would only artificially depreciate by
one-fourth all the rateable values put down in the magistrate's book.
I have not stopped to cumber the statement of this simple plan by adding
the details necessary to meet severance of a farm by a railway company,
etc. The provisions to meet complicated tenures, etc., would run much
the same as in the Lands Clauses Consolidation Act.