TAXES ON OTHER COMMODITIES THAN RAW PRODUCE.
On the same principle that a tax on corn would raise the price of corn,
a tax on any other commodity would raise the price of that commodity. If
the commodity did not rise by a sum equal to the tax, it would not give
the same profit to the producer which he had before, and he would remove
his capital to some other employment.
The taxing of all commodities, whether they be necessaries or luxuries,
will, while money remains at an unaltered value, raise their prices by a
sum at least equal to the tax.[19] A tax on the manufactured necessaries
of the labourer would have the same effect on wages as a tax on corn,
which differs from other necessaries only by being the first and most
important on the list; and it would produce precisely the same effects
on the profits of stock and foreign trade. But a tax on luxuries would
have no other effect than to raise their price. It would fall wholly on
the consumer, and could neither increase wages, nor lower profits.
Taxes which are levied on a country for the purpose of supporting war,
or for the ordinary expenses of the state, and which are chiefly devoted
to the support of unproductive labourers, are taken from the productive
industry of the country; and every saving which can be made from such
expenses will be generally added to the income, if not to the capital of
the contributors. When for the expenses of a year's war, twenty millions
are raised by means of a loan, it is the twenty millions which are
withdrawn from the productive capital of the nation. The million per
annum which is raised by taxes to pay the interest of this loan, is
merely transferred from those who pay it to those who receive it, from
the contributor to the tax to the national creditor. The real expense is
the twenty millions, and not the interest which must be paid for it.[20]
Whether the interest be or be not paid, the country will neither be
richer nor poorer. Government might at once have required the twenty
millions in the shape of taxes; in which case it would not have been
necessary to raise annual taxes to the amount of a million. This however
would not have changed the nature of the transaction. An individual
instead of being called upon to pay 100_l._ per annum, might have been
obliged to pay 2000_l._ once for all. It might also have suited his
convenience rather to borrow this 2000_l._, and to pay 100_l._ per annum
for interest to the lender, than to spare the larger sum from his own
funds. In one case it is a private transaction between A and B, in the
other Government guarantees to B the payment of the interest to be
equally paid by A. If the transaction had been of a private nature, no
public record would be kept of it, and it would be a matter of
comparative indifference to the country whether A faithfully performed
his contract to B, or unjustly retained, the 100_l._ per annum in his
own possession. The country would have a general interest in the
faithful performance of a contract, but with respect to the national
wealth, it would have no other interest than whether A or B would make
this 100_l._ most productive, but on this question it would neither have
the right nor the ability to decide. It might be possible, that if A
retained it for his own use, he might squander it unprofitably, and if
it were paid to B, he might add it to his capital, and employ it
productively. And the converse would also be possible, B might squander
it, and A might employ it productively. With a view to wealth only, it
might be equally or more desirable that A should or should not pay it;
but the claims of justice and good faith, a greater utility, are not to
be compelled to yield to those of a less; and accordingly, if the state
were called upon to interfere, the courts of justice would oblige A to
perform his contract. A debt guaranteed by the nation, differs in no
respect from the above transaction. Justice and good faith demand that
the interest of the national debt should continue to be paid, and that
those who have advanced their capitals for the general benefit, should
not be required to forego their equitable claims, on the plea of
expediency.
But independently of this consideration, it is by no means certain, that
political utility would gain any thing by the sacrifice of political
integrity; it does by no means follow, that the party exonerated from
the payment of the interest of the national debt would employ it more
productively than those to whom indisputably it is due. By cancelling
the national debt, one man's income might be raised from 1000_l._ to
1500_l._, but another man's would be lowered from 1500_l._ to 1000_l._
These two men's income now amount to 2500_l._, they would amount to no
more then. If it be the object of Government to raise taxes, there would
be precisely the same taxable capital and income in one case, as in the
other. It is not then by the payment of the interest on the national
debt that a country is distressed, nor is it by the exoneration from
payment that it can be relieved. It is only by saving from income, and
retrenching in expenditure, that the national capital can be increased;
and neither the income would be increased, nor the expenditure
diminished by the annihilation of the national debt. It is by the
profuse expenditure of Government, and of individuals, and by loans,
that a country is impoverished; every measure therefore which is
calculated to promote public and private oeconomy will relieve the
public distress; but it is error and delusion, to suppose that a real
national difficulty can be removed, by shifting it from the shoulders of
one class of the community, who justly ought to bear it, to the
shoulders of another class, who upon every principle of equity ought to
bear no more than their share. From what I have said, it must not be
inferred that I consider the system of borrowing as the best calculated
to defray the extraordinary expenses of the state. It is a system which
tends to make us less thrifty--to blind us to our real situation. If the
expenses of a war be 40 millions per annum, and the share which a man
would have to contribute towards that annual expense were 100_l._, he
would endeavour, on being at once called upon for his portion, to save
speedily the 100_l._ from his income. By the system of loans he is
called upon to pay only the interest of this 100_l._, or 5_l._ per
annum, and considers that he does enough by saving this 5_l._ from his
expenditure, and then deludes himself with the belief that he is as rich
as before. The whole nation, by reasoning and acting in this manner,
save only the interest of 40 millions, or two millions; and thus, not
only lose all the interest or profit which 40 millions of capital,
employed productively, would afford, but also 38 millions, the
difference between their savings and expenditure. If, as I before
observed, each man had to make his own loan, and contribute his full
proportion to the exigencies of the state, as soon as the war ceased,
taxation would cease, and we should immediately fall into a natural
state of prices. Out of his private funds, A might have to pay to B
interest for the money he borrowed of him during the war, to enable him
to pay his quota of the expense; but with this the nation would have no
concern. A country which has accumulated a large debt is placed in a
most artificial situation; and although the amount of taxes, and the
increased price of labour, may not, and I believe does not, place it
under any other disadvantage with respect to foreign countries, except
the unavoidable one of paying those taxes, yet it becomes the interest
of every contributor to withdraw his shoulder from the burthen, and to
shift this payment from himself to another; and the temptation to remove
himself and his capital to another country, where he will be exempted
from such burthens, becomes at last irresistible, and overcomes the
natural reluctance which every man feels to quit the place of his birth,
and the scene of his early associations. A country which has involved
itself in the difficulties attending this artificial system, would act
wisely by ransoming itself from them, at the sacrifice of any portion of
its property which might be necessary to redeem its debt. That which is
wise in an individual, is wise also in a nation. A man who has
10,000_l._, paying him an income of 500_l._, out of which he has to pay
100_l._ per annum towards the interest of the debt, is really worth only
8000_l._, and would be equally rich, whether he continued to pay 100_l._
per annum, or at once, and for only once, sacrificed 2000_l._ But where,
it is asked, would be the purchaser of the property which he must sell
to obtain this 2000_l._? The answer is plain: the national creditor, who
is to receive this 2000_l._, will want an investment for his money, and
will be disposed either to lend it to the landholder, or manufacturer,
or to purchase from them a part of the property of which they have to
dispose. To such an effect the stockholders themselves would largely
contribute. Such a scheme has been often recommended, but we have, I
fear, neither wisdom enough, nor virtue enough, to adopt it. It must
however be admitted, that during peace, our unceasing efforts should be
directed towards paying off that part of the debt which has been
contracted during war; and that no temptation of relief, no desire of
escape from present, and I hope temporary distresses, should induce us
to relax in our attention to that great object. No sinking fund can be
efficient for the purpose of diminishing the debt, if it be not derived
from the excess of the public revenue over the public expenditure. It is
to be regretted, that the sinking fund in this country is only such in
name; for there is no excess of revenue above expenditure. It ought by
economy, to be made what it is professed to be, a really efficient fund
for the payment of the debt. If on the breaking out of any future war,
we shall not have very considerably reduced our debt, one of two things
must happen, either the whole expenses of that war must be defrayed by
taxes raised from year to year, or we must, at the end of that war, if
not before, submit to a national bankruptcy; not that we shall be unable
to bear any large additions to the debt; it would be difficult to set
limits to the powers of a great nation; but assuredly there are limits
to the price, which in the form of perpetual taxation, individuals will
submit to pay for the privilege merely of living in their native
country.
When a commodity is at a monopoly price, it is at the very highest price
at which the consumers are willing to purchase it. Commodities are only
at a monopoly price, when by no possible device their quantity can be
augmented; and when therefore, the competition is wholly on one
side--amongst the buyers. The monopoly price of one period may be much
lower or higher than the monopoly price of another, because the
competition amongst the purchasers must depend on their wealth, and
their tastes and caprices. Those peculiar wines, which are produced in
very limited quantity, and those works of art, which from their
excellence or rarity, have acquired a fanciful value, will be exchanged
for a very different quantity of the produce of ordinary labour,
according as the society is rich or poor, as it possesses an abundance
or scarcity of such produce, or as it may be in a rude or polished
state. The exchangeable value therefore of a commodity which is at a
monopoly price, is no where regulated by the cost of production.
Raw produce is not at a monopoly price, because the market price of
barley and wheat is as much regulated by their cost of production, as
the market price of cloth and linen. The only difference is this, that
one portion of the capital employed in agriculture regulates the price
of corn, namely, that portion which pays no rent; whereas, in the
production of manufactured commodities, every portion of capital is
employed with the same results; and as no portion pays rent, every
portion is equally a regulator of price: corn, and other raw produce,
can be augmented too in quantity, by the employment of more capital on
the land, and therefore they are not at a monopoly price. There is
competition among the sellers, as well as amongst the buyers. This is
not the case in the production of those rare wines, and those valuable
specimens of art, of which we have been speaking; their quantity cannot
be increased, and their price is limited only by the extent of the power
and will of the purchasers. The rent of these vineyards may be raised
beyond any moderately assignable limits, because no other land being
able to produce such wines, none can be brought into competition with
them.
The corn and raw produce of a country, may indeed for a time sell at a
monopoly price; but they can do so permanently only when no more
capital can be profitably employed on the lands, and when, therefore,
their produce cannot be increased. At such time, every portion of land
in cultivation, and every portion of capital employed on the land will
yield a rent, differing indeed in proportion to the difference in the
return. At such a time too, any tax which may be imposed on the farmer,
will fall on rent, and not on the consumer. He cannot raise the price of
his corn, because, by the supposition, it is already at the highest
price at which the purchasers will or can buy it. He will not be
satisfied with a lower rate of profits, than that obtained by other
capitalists, and, therefore, his only alternative will be to obtain a
reduction of rent, or to quit his employment.
Mr. Buchanan considers corn and raw produce as at a monopoly price,
because they yield a rent: all commodities which yield a rent, he
supposes must be at a monopoly price; and thence he infers, that all
taxes on raw produce would fall on the landlord, and not on the
consumer. "The price of corn," he says, "which always affords a rent,
being in no respect influenced by the expenses of its production, those
expenses must be paid out of the rent; and when they rise or fall,
therefore, the consequence is not a higher or a lower price, but a
higher or a lower rent. In this view, all taxes on farm servants,
horses, or the implements of agriculture, are in reality land-taxes; the
burden falling on the farmer during the currency of his lease, and on
the landlord, when the lease comes to be renewed. In like manner all
those improved implements of husbandry which save expense to the farmer,
such as machines for threshing and reaping, whatever gives him easier
access to the market, such as good roads, canals, and bridges, though
they lessen the original cost of corn, do not lessen its market price.
Whatever is saved by those improvements, therefore, belongs to the
landlord as part of his rent."
It is evident that if we yield to Mr. Buchanan the basis on which his
argument is built, namely, that the price of corn always yields a rent,
all the consequences which he contends for would follow of course. Taxes
on the farmer would then fall not on the consumer but on rent; and all
improvements in husbandry would increase rent: but I hope I have made it
sufficiently clear, that until a country is cultivated in every part,
and up to the highest degree, there is always a portion of capital
employed on the land which yields no rent, and that it is this portion
of capital, the result of which, as in manufactures, is divided between
profits and wages, that regulates the price of corn. The price of corn
then, which does not afford a rent, being influenced by the expenses of
its production, those expenses cannot be paid out of rent. The
consequence therefore of those expenses increasing, is a higher price,
and not a lower rent.[21]
It is remarkable that both Adam Smith and Mr. Buchanan, who entirely
agree that taxes on raw produce, a land-tax, and tithes, all fall on
the rent of land, and not on the consumers of raw produce, should
nevertheless admit that taxes on malt would fall on the consumer of
beer, and not on the rent of the landlord. Adam Smith's argument is so
able a statement of the view which I take of the subject of the tax on
malt, and every other tax on raw produce, that I cannot refrain from
offering it to the attention of the reader.
"The rent and profits of barley land must always be nearly equal to
those of other equally fertile, and equally well cultivated land. If
they were less, some part of the barley land would soon be turned to
some other purpose; and if they were greater, more land would soon be
turned to the raising of barley. When the ordinary price of any
particular produce of land is at what may be called a monopoly price, a
tax upon it necessarily reduces the rent and profit[22] of the land
which grows it. A tax upon the produce of those precious vineyards, of
which the wine falls so much short of the effectual demand, that its
price is always above the natural proportion to that of other equally
fertile, and equally well cultivated land, would necessarily reduce the
rent and profit[22] of those vineyards. The price of the wines being
already the highest that could be got for the quantity commonly sent to
market, it could not be raised higher without diminishing that quantity;
and the quantity could not be diminished without still greater loss,
because the lands could not be turned to any other equally valuable
produce. The whole weight of the tax, therefore, would fall upon the
rent and profit;[23] properly upon the _rent_ of the vineyard." "But the
ordinary price of barley has never been a monopoly price; and the rent
and profit of barley land have never been above their natural proportion
to those of other equally fertile and equally well cultivated land. The
different taxes which have been imposed upon malt, beer, and ale, _have
never lowered the price of barley_; have never reduced the rent and
profit[24] of barley land. The price of malt to the brewer has
constantly risen in proportion to the taxes imposed upon it; and those
taxes, together with the different duties upon beer and ale, have
constantly either raised the price, or, what comes to the same thing,
reduced the quality of those commodities to the consumer. The final
payment of those taxes has fallen constantly upon the consumer, and not
upon the producer." On this passage Mr. Buchanan remarks, "A duty on
malt never could reduce the price of barley, because, unless as much
could be made of barley by malting it as by selling it unmalted, the
quantity required would not be brought to market. It is clear,
therefore, that the price of malt must rise in proportion to the tax
imposed on it, as the demand could not otherwise be supplied. The price
of barley, however, is just as much a monopoly price as that of sugar;
they both yield a rent, and the market price of both has equally lost
all connexion with the original cost."
It appears then to be the opinion of Mr. Buchanan, that a tax on malt
would raise the price of malt, but that a tax on the barley from which
malt is made, would not raise the price of barley; and therefore, if
malt is taxed, the tax will be paid by the consumer; if barley is taxed,
it will be paid by the landlord, as he will receive a diminished rent.
According to Mr. Buchanan then, barley is at a monopoly price, at the
highest price which the purchasers are willing to give for it; but malt
made of barley is not at a monopoly price, and consequently it can be
raised in proportion to the taxes that may be imposed upon it. This
opinion of Mr. Buchanan of the effects of a tax on malt appears to me to
be in direct contradiction to the opinion he has given of a similar tax,
a tax on bread. "A tax on bread will be ultimately paid, not by a rise
of price, but by a reduction of rent."[25] If a tax on malt would raise
the price of beer, a tax on bread must raise the price of bread.
The following argument of M. Say is founded on the same views as Mr.
Buchanan's: "The quantity of wine or corn which a piece of land will
produce, will remain nearly the same, whatever may be the tax with which
it is charged. The tax may take away a half, or even three-fourths of
its net produce, or of its rent if you please, yet the land would
nevertheless be cultivated for the half or the quarter not absorbed by
the tax. The rent, that is to say the landlord's share, would merely be
somewhat lower. The reason of this will be perceived, if we consider,
that in the case supposed, the quantity of produce obtained from the
land, and sent to market, will remain nevertheless the same. On the
other hand the motives on which the demand for the produce is founded
continue also the same.
"Now, if the quantity of produce supplied, and the quantity demanded,
necessarily continue the same, notwithstanding the establishment or the
increase of the tax, the price of that produce will not vary; and if the
price do not vary, the consumer will not pay the smallest portion of
this tax.
"Will it be said that the farmer, he who furnishes labour and capital,
will, jointly with the landlord, bear the burden of this tax? certainly
not; because the circumstance or the tax has not diminished the number
of farms to be let, nor increased the number of farmers. Since in this
instance also the supply and demand remain the same, the rent of farms
must also remain the same. The example of the manufacturer of salt, who
can only make the consumers pay a portion of the tax, and that of the
landlord who cannot reimburse himself in the smallest degree, prove the
error of those who maintain, in opposition to the economists, that all
taxes fall ultimately on the consumer."--Vol. ii. p. 338.
If the tax "took away half, or even three-fourths of the net produce of
the land," and the price of produce did not rise, how could those
farmers obtain the usual profits of stock who paid very moderate rents,
having that quality of land which required a much larger proportion of
labour to obtain a given result, than land of a more fertile quality? If
the whole rent were remitted, they would still obtain lower profits
than those in other trades, and would therefore not continue to
cultivate their land, unless they could raise the price of its produce.
If the tax fell on the farmers, there would be fewer farmers disposed to
hire farms; if it fell on the landlord, many farms would not be let at
all, for they would afford no rent. But from what fund would those pay
the tax who produce corn without paying any rent? It is quite clear that
the tax must fall on the consumer. How would such land, as M. Say
describes in the following passage, pay a tax of one-half or
three-fourths of its produce?
"We see in Scotland poor lands thus cultivated by the proprietor, and
which could be cultivated by no other person. Thus too we see in the
interior provinces of the United States vast and fertile lands, the
revenue of which alone would not be sufficient for the maintenance of
the proprietor. These lands are cultivated nevertheless, but it must be
by the proprietor himself, or, in other words, he must add to the rent,
which is little or nothing, the profits of his capital and industry, to
enable him to live in competence. It is well known that land, though
cultivated, yields no revenue to the landlord when no farmer will be
willing to pay a rent for it: which is a proof that such land will give
only the profits of the capital and of the industry necessary for its
cultivation."--_Say_, Vol. ii. p. 127.