TAXES ON GOLD.
The rise in the price of commodities, in consequence of taxation or of
difficulty of production, will in all cases ultimately ensue; but the
duration of the interval, before the market price of commodities
conforms to their natural price, must depend on the nature of the
commodity, and on the facility with which it can be reduced in quantity.
If the quantity of the commodity taxed could not be diminished, if the
capital of the farmer or of the hatter for instance, could not be
withdrawn to other employments, it would be of no consequence that their
profits were reduced below the general level by means of a tax; unless
the demand for their commodities should increase, they would never be
able to elevate the market price of corn and hats up to the increased
natural price. Their threats to leave their employments, and remove
their capitals to more favoured trades, would be treated as an idle
menace which could not be carried into effect; and consequently the
price would not be raised by diminished production. Commodities however
of all descriptions can be reduced in quantity, and capital can be
removed from trades which are less profitable to those which are more
so, but with different degrees of rapidity. In proportion as the supply
of a particular commodity can be more easily reduced, the price of it
will more quickly rise after the difficulty of its production has been
increased by taxation, or by any other means. Corn being a commodity
indispensably necessary to every one, little effect will be produced on
the demand for it in consequence of a tax, and therefore the supply
could not be long excessive, even if the producers had great difficulty
in removing their capitals from the land; the price of corn therefore,
will speedily be raised by taxation, and the farmer will be enabled to
transfer the tax from himself to the consumer.
If the mines which supply us with gold were in this country, and if
gold were taxed, it could not rise in relative value to other things
till its quantity were reduced. This would be more particularly the
case, if gold were exclusively used for money. It is true that the least
productive mines, those which paid no rent, could no longer be worked,
as they could not afford the general rate of profits till the relative
value of gold rose, by a sum equal to the tax. The quantity of gold, and
therefore the quantity of money would be slowly reduced; it would be a
little diminished in one year, a little more in another, and finally its
value would be raised in proportion to the tax; but in the interval, the
proprietors or holders, as they would pay the tax, would be the
sufferers, and not those who used money. If out of every 1000 quarters
of wheat in the country, and every 1000 produced in future, government
should exact 100 quarters as a tax, the remaining 900 quarters would
exchange for the same quantity of other commodities that 1000 did
before; but if the same thing took place with respect to gold, if of
every 1000_l._ money now in the country, or in future to be brought into
it, government could exact 100_l._ as a tax, the remaining 900_l._
would purchase very little more than 900_l._ purchased before. The tax
would fall upon him, whose property consisted of money, and would
continue to do so till its quantity were reduced in proportion to the
increased cost of its production caused by the tax.
This perhaps would be more particularly the case with respect to a metal
used for money, than any other commodity, because the demand for money
is not for a definite quantity, as is the demand for clothes, or for
food. The demand for money is regulated entirely by its value, and its
value by its quantity. If gold were of double the value, half the
quantity would perform the same functions in circulation, and if it were
of half the value, double the quantity would be required. If the market
value of corn be increased one tenth by taxation, or by difficulty of
production, it is doubtful, whether any effect whatever would be
produced on the quantity consumed, because every man's want is for a
definite quantity, and, therefore, if he has the means of purchasing, he
will continue to consume as before; but for money, the demand is
exactly proportioned to its value. No man could consume twice the
quantity of corn, which is usually necessary for his support, but every
man purchasing and selling only the same quantity of goods, may be
obliged to employ twice, thrice, or any number of times the same
quantity of money.
The argument which I have just been using, applies only to those states
of society in which the precious metals are used for money, and where
paper credit is not established. The metal gold like all other
commodities has its value in the market ultimately regulated by the
comparative facility or difficulty of producing it; and although from
its durable nature, and from the difficulty of reducing its quantity, it
does not readily bend to variations in its market value, yet that
difficulty is much increased from the circumstance of its being used as
money. If the quantity of gold in the market for the purpose of commerce
only, were 10,000 ounces, and the consumption in our manufactures were
2000 ounces annually, it might be raised one fourth, or 25 per cent. in
its value, in one year, by withholding the annual supply; but if in
consequence of its being used as money, the quantity employed were
100,000 ounces, it would not be raised one fourth in value in less than
ten years. As money made of paper may be readily reduced in quantity,
its value, though its standard were gold, would be increased as rapidly
as that of the metal itself would be increased if it had no connexion
whatever with money.
If gold were the produce of one country only, and it were used
universally for money, a very considerable tax might be imposed on it,
which would not fall on any country, except in proportion as they used
it in manufactures, and for utensils; upon that portion which was used
for money, though a large tax might be received, nobody would pay it.
This is a quality peculiar to money. All other commodities of which
there exists a limited quantity, and which cannot be increased by
competition, are dependant for their value, on the tastes, the caprice,
and the power of purchasers; but money is a commodity which no country
has any wish or necessity to increase: no more advantage results from
using twenty millions, than from using ten millions of currency. A
country might have a monopoly of silk, or of wine, and yet the prices of
silks and wine might fall, because from caprice or fashion, or taste,
cloth and brandy might be preferred, and substituted; the same effect
might in a degree take place with gold, as far as its use is confined to
manufactures: but while money is the general medium of exchange, the
demand for it is never a matter of choice, but always of necessity; you
must take it in exchange for your goods, and therefore there are no
limits to the quantity which may be forced on you by foreign trade, if
it fall in value; and no reduction to which you must not submit, if it
rise. You may indeed substitute paper money, but by this you do not, and
cannot lessen the quantity of money; it is only by the rise of the price
of commodities, that you can prevent them from being exported from a
country where they are purchased with little money, to a country where
they can be sold for more, and this rise can only be effected by an
importation of metallic money from abroad, or by the creation or
addition of paper money at home. If then the King of Spain, supposing
him to be in exclusive possession of the mines, and gold alone to be
used for money, were to lay a considerable tax on gold, he would very
much raise its natural value; and as its market value in Europe is
ultimately regulated by its natural value in Spanish America, more
commodities would be given by Europe for a given quantity of gold. But
the same quantity of gold would not be produced in America, as its value
would only be increased in proportion to the diminution of quantity
consequent on its increased cost of production. No more goods then would
be obtained in America, in exchange for all their gold exported, than
before; and it may be asked, where then would be the benefit to Spain
and her colonies? The benefit would be this, that if less gold were
produced, less capital would be employed in producing it; the same value
of goods from Europe would be imported by the employment of the smaller
capital, that was before obtained by the employment of the larger; and
therefore all the productions obtained by the employment of the capital
withdrawn from the mines, would be a benefit which Spain would derive
from the imposition of the tax, and which she could not obtain in such
abundance, or with such certainty, by possessing the monopoly of any
other commodity whatever. From such a tax, as far as money was
concerned, the nations of Europe would suffer no injury whatever; they
would have the same quantity of goods, and consequently the same means
of enjoyment as before, but these goods would be circulated with a less
quantity of money.
If in consequence of the tax, only one tenth of the present quantity of
gold were obtained from the mines, that tenth would be of equal value
with the ten tenths now produced. But the King of Spain is not
exclusively in possession of the mines of the precious metals; and if he
were, his advantage from their possession, and the power of taxation,
would be very much reduced by the limitation of demand and consumption
in Europe, in consequence of the universal substitution, in a greater or
less degree, of paper money. The agreement of the market and natural
prices of all commodities, depends at all times on the facility with
which the supply can be increased or diminished. In the case of gold,
houses, and labour, as well as many other things, this effect cannot,
under some circumstances, be speedily produced. But it is different with
those commodities which are consumed and reproduced from year to year,
such as hats, shoes, corn, and cloth; they may be reduced if necessary,
and the interval cannot be long before the supply is contracted in
proportion to the increased charge of producing them.
A tax on raw produce from the surface of the earth, will, as we have
seen, fall on the consumer, and will in no way affect rent; unless, by
diminishing the funds for the maintenance of labour, it lowers wages,
reduces the population, and diminishes the demand for corn. But a tax on
the produce of gold mines must, by enhancing the value of that metal,
necessarily reduce the demand for it, and must therefore necessarily
displace capital from the employment to which it was applied.
Notwithstanding then, that Spain would derive all the benefits which I
have stated from a tax on gold, the proprietors of mines from which
capital was withdrawn would lose all their rent. This would be a loss
to individuals, but not a national loss; rent being not a creation, but
merely a transfer of wealth: the King of Spain, and the proprietors of
the mines which continued to be worked, would together receive not only
all that the liberated capital produced, but all that the other
proprietors lost.
Suppose the mines of the 1st, 2nd, and 3rd quality to be worked, and to
produce respectively 100, 80, and 70 pounds weight of gold, and
therefore the rent of No. 1 to be thirty pounds, and that of No. 2 ten
pounds. Suppose now the tax to be seventy pounds of gold per annum on
each mine worked; and consequently that No. 1 alone could be profitably
worked; it is evident that all rent would immediately disappear. Before
the imposition of the tax, out of the 100 pounds produced on No. 1, a
rent was paid of thirty pounds, and the worker of the mine retained
seventy, a sum equal to the produce of the least productive mine. The
value then of what remains to the capitalist of the mine No. 1 must be
the same as before, or he would not obtain the common profits of stock;
and consequently, after paying seventy out of his 100 pounds for tax,
the value of the remaining thirty must be as great as seventy were
before, and therefore the value of the whole hundred as great as 233
pounds before. Its value might be higher, but it could not be lower, or
even this mine would cease to be worked. Being a monopolised commodity,
it could exceed its natural value, and then it would pay a rent equal to
that excess; but no funds would be employed in the mine, if it were
below this value. In return for one-third of the labour and capital
employed in the mines, Spain would obtain as much gold as would exchange
for the same, or very nearly the same, quantity of commodities as
before. She would be richer by the produce of the two thirds liberated
from the mines. If the value of the 100 pounds of gold should be equal
to that of the 250 pounds extracted before; the king of Spain's portion,
his seventy pounds, would be equal to 175 at the former value: a small
part of the king's tax only would fall on his own subjects, the greater
part being obtained by the better distribution of capital.
The account of Spain would stand thus:
_Formerly produced_:
Gold 250 pounds, of the value of (suppose) 10,000 yards of
cloth.
_Now produced_:
By the two capitalists who quitted the mines,} 5,600 yards of
the value of 140 pounds of gold, or } cloth.
By the capitalist who works the mine, No. 1, }
thirty pounds of gold increased in value, } 3,000 yards of
as 1 to 2-1/2, and therefore now of the } cloth.
value of }
Tax to the king seventy pounds, now of the } 7,000 yards of
value of } cloth.
------
15,600
------
Of the 7000 received by the king, the people of Spain would contribute
only 1400, and 5600 would be pure gain, effected by the liberated
capital.
If the tax, instead of being a fixed sum per mine worked, were a certain
portion of its produce, the quantity would not be reduced in
consequence. If a half, a fourth, or a third of each mine were taken for
the tax, it would nevertheless be the interest of the proprietors to
make their mines yield as abundantly as before; but if the quantity were
not reduced, but only a part of it transferred from the proprietor to
the king, its value would not rise; the tax would fall on the people of
the colonies, and no advantage would be gained. A tax of this kind would
have the effect that Adam Smith supposes taxes on raw produce would have
on the rent of land--it would fall entirely on the rent of the mine. If
pushed a little further, the tax would not only absorb the whole rent,
but would deprive the worker of the mine of the common profits of stock,
and he would consequently withdraw his capital from the production of
gold. If still further extended, the rent of still better mines would be
absorbed, and capital would be further withdrawn; and thus the quantity
would be continually reduced, and its value raised, and the same effects
would take place as we have already pointed out; a part of the tax would
be paid by the people of the Spanish colonies, and the other part would
be a new creation of produce, by increasing the power of the instrument
used as a medium of exchange. Taxes on gold are of two kinds, one on the
actual quantity of gold in circulation, the other on the quantity that
is annually produced from the mines. Both have a tendency to reduce the
quantity, and to raise the value of gold; but by neither will its value
be raised till the quantity is reduced, and therefore such taxes will
fall for a time, until the supply is diminished, on the proprietors of
money, but ultimately they will be paid by the owner of the mine in the
reduction of rent, and by the purchasers of that portion of gold, which
is used as a commodity contributing to the enjoyments of mankind, and
not set apart exclusively for a circulating medium.