A tax of so much per cent on the gross rent falls on both those portions
alike. The more highly a house is rented, the more it pays to the tax,
whether the quality of the situation or that of the house itself is the
cause. The incidence, however, of these two portions of the tax must be
considered separately.
As much of it as is a tax on building-rent must ultimately fall on the
consumer, in other words, the occupier. For, as the profits of building
are already not above the ordinary rate, they would, if the tax fell on
the owner and not on the occupier, become lower than the profits of
untaxed employments, and houses would not be built. It is probable,
however, that for some time after the tax was first imposed, a great part
of it would fall, not on the renter, but on the owner of the house. A
large proportion of the consumers either could not afford, or would not
choose, to pay their former rent with the tax in addition, but would
content themselves with a lower scale of accommodation. Houses, therefore,
would be for a time in excess of the demand. The consequence of such
excess, in the case of most other articles, would be an almost immediate
diminution of the supply; but so durable a commodity as houses does not
rapidly diminish in amount. New buildings, indeed, of the class for which
the demand had decreased, would cease to be erected, except for special
reasons; but in the mean time the temporary superfluity would lower rents,
and the consumers would obtain, perhaps, nearly the same accommodation as
formerly, for the same aggregate payment, rent and tax together. By
degrees, however, as the existing houses wore out, or as increase of
population demanded a greater supply, rents would again rise; until it
became profitable to recommence building, which would not be until the tax
was wholly transferred to the occupier. In the end, therefore, the
occupier bears that portion of a tax on rent which falls on the payment
made for the house itself, exclusively of the ground it stands on.
The case is partly different with the portion which is a tax on
ground-rent. As taxes on rent, properly so called, fall on the landlord, a
tax on ground-rent, one would suppose, must fall on the ground-landlord,
at least after the expiration of the building-lease. It will not, however,
fall wholly on the landlord, unless with the tax on ground-rent there is
combined an equivalent tax on agricultural rent. The lowest rent of land
let for building is very little above the rent which the same ground would
yield in agriculture: since it is reasonable to suppose that land, unless
in case of exceptional circumstances, is let or sold for building as soon
as it is decidedly worth more for that purpose than for cultivation. If,
therefore, a tax were laid on ground-rents without being also laid on
agricultural rents, it would, unless of trifling amount, reduce the return
from the lowest ground-rents below the ordinary return from land, and
would check further building quite as effectually as if it were a tax on
building-rents, until either the increased demand of a growing population,
or a diminution of supply by the ordinary causes of destruction, had
raised the rent by a full equivalent for the tax. But whatever raises the
lowest ground-rents raises all others, since each exceeds the lowest by
the market value of its peculiar advantages. If, therefore, the tax on
ground-rents were a fixed sum per square foot, the more valuable
situations paying no more than those least in request, this fixed payment
would ultimately fall on the occupier. Suppose the lowest ground-rent to
be $50 per acre, and the highest $5,000, a tax of $5 per acre on
ground-rents would ultimately raise the former to $55, and the latter
consequently to $5,005, since the difference of value between the two
situations would be exactly what it was before: the annual $5, therefore,
would be paid by the occupier. But a tax on ground-rent is supposed to be
a portion of a house-tax which is not a fixed payment, but a percentage on
the rent. The cheapest site, therefore, being supposed as before to pay
$5, the dearest would pay $500, of which only the $5 could be thrown upon
the occupier, since the rent would still be only raised to $5,005.
Consequently, $495 of the $500 levied from the expensive site would fall
on the ground-landlord.(341) A house-tax thus requires to be considered in
a double aspect, as a tax on all occupiers of houses, and a tax on
ground-rents.
In the vast majority of houses the ground-rent forms but a small
proportion of the annual payment made for the house, and nearly all the
tax falls on the occupier. It is only in exceptional cases, like that of
the favorite situations in large towns, that the predominant element in
the rent of the house is the ground-rent; and, among the very few kinds of
income which are fit subjects for peculiar taxation, these ground-rents
hold the principal place, being the most gigantic example extant of
enormous accessions of riches acquired rapidly, and in many cases
unexpectedly, by a few families, from the mere accident of their
possessing certain tracts of land without their having themselves aided in
the acquisition by the smallest exertion, outlay, or risk. So far,
therefore, as a house-tax falls on the ground-landlord, it is liable to no
valid objection.
In so far as it falls on the occupier, if justly proportioned to the value
of the house, it is one of the fairest and most unobjectionable of all
taxes. No part of a person’s expenditure is a better criterion of his
means, or bears, on the whole, more nearly the same proportion to them.
The equality of this tax can only be seriously questioned on two grounds.
The first is, that a miser may escape it. This objection applies to all
taxes on expenditure; nothing but a direct tax on income can reach a
miser. The second objection is, that a person may require a larger and
more expensive house, not from having greater means, but from having a
larger family. Of this, however, he is not entitled to complain, since
having a large family is at a person’s own choice; and, so far as concerns
the public interest, is a thing rather to be discouraged than
promoted.(342)
A valuation should be made of the house, not at what it would sell for,
but at what would be the cost of rebuilding it, and this valuation might
be periodically corrected by an allowance for what it had lost in value by
time, or gained by repairs and improvements. The amount of the amended
valuation would form a principal sum, the interest of which, at the
current price of the public funds, would form the annual value at which
the building should be assessed to the tax.
As incomes below a certain amount ought to be exempt from income-tax, so
ought houses below a certain value from house-tax, on the universal
principle of sparing from all taxation the absolute necessaries of
healthful existence. In order that the occupiers of lodgings, as well as
of houses, might benefit, as in justice they ought, by this exemption, it
might be optional with the owners to have every portion of a house which
is occupied by a separate tenant valued and assessed separately.
Chapter III. Of Taxes On Commodities, Or Indirect Taxes.
§ 1. A Tax on all commodities would fall on Profits.
By taxes on commodities are commonly meant those which are levied either
on the producers, or on the carriers or dealers who intervene between them
and the final purchasers for consumption; the phrase being, by custom,
confined to indirect taxes—those which are advanced by one person, to be,
as is expected and intended, reimbursed by another.
Taxes on commodities are either on production within the country, or on
importation into it, or on conveyance or sale within it, and are classed
respectively as excise, customs, or tolls and transit duties. To whichever
class they belong, and at whatever stage in the progress of the community
they may be imposed, they are equivalent to an increase of the cost of
production; using that term in its most enlarged sense, which includes the
cost of transport and distribution, or, in common phrase, of bringing the
commodity to market.
When the cost of production is increased artificially by a tax, the effect
is the same as when it is increased by natural causes. If only one or a
few commodities are affected, their value and price rise, so as to
compensate the producer or dealer for the peculiar burden; but if there
were a tax on all commodities, exactly proportioned to their value, no
such compensation would be obtained; there would neither be a general rise
of values, which is an absurdity, nor of prices, which depend on causes
entirely different. There would, however, as Mr. McCulloch has pointed
out, be a disturbance of values, some falling, others rising, owing to a
circumstance, the effect of which on values and prices we formerly
discussed—the different durability of the capital employed in different
occupations. The gross produce of industry consists of two parts; one
portion serving to replace the capital consumed, while the other portion
is profit. Now, equal capital in two branches of production must have
equal expectations of profit; but if a greater portion of the one than of
the other is fixed capital, or if that fixed capital is more durable,
there will be a less consumption of capital in the year, and less will be
required to replace it, so that the profit, if absolutely the same, will
form a greater proportion of the annual returns. To derive from a capital
of $1,000 a profit of $100, the one producer may have to sell produce to
the value of $1,100, the other only to the value of $500. If on these two
branches of industry a tax be imposed of five per cent _ad valorem_, the
last will be charged only with $25, the first with $55; leaving to the one
$75 profit, to the other only $45. To equalize, therefore, their
expectation of profit, the one commodity must rise in price, or the other
must fall, or both.(343) Commodities made chiefly by immediate labor must
rise in value, as compared with those which are chiefly made by machinery.
It is unnecessary to prosecute this branch of the inquiry any further.
§ 2. Taxes on particular commodities fall on the consumer.
A tax on any one commodity, whether laid on its production, its
importation, its carriage from place to place, or its sale, and whether
the tax be a fixed sum of money for a given quantity of the commodity, or
an _ad valorem_ duty, will, as a general rule, raise the value and price
of the commodity by at least the amount of the tax. There are few cases in
which it does not raise them by more than that amount. In the first place,
there are few taxes on production on account of which it is not found or
deemed necessary to impose restrictive regulations on the manufacturers or
dealers, in order to check evasions of the tax. These regulations are
always sources of trouble and annoyance, and generally of expense, for all
of which, being peculiar disadvantages, the producers or dealers must have
compensation in the price of their commodity. These restrictions also
frequently interfere with the processes of manufacture, requiring the
producer to carry on his operations in the way most convenient to the
revenue, though not the cheapest or most efficient for purposes of
production. Any regulations whatever, enforced by law, make it difficult
for the producer to adopt new and improved processes. Further, the
necessity of advancing the tax obliges producers and dealers to carry on
their business with larger capitals than would otherwise be necessary, on
the whole of which they must receive the ordinary rate of profit, though a
part only is employed in defraying the real expenses of production or
importation. The price of the article must be such as to afford a profit
on more than its natural value, instead of a profit on only its natural
value. Neither ought it to be forgotten that whatever renders a larger
capital necessary in any trade or business limits the competition in that
business, and, by giving something like a monopoly to a few dealers, may
enable them either to keep up the price beyond what would afford the
ordinary rate of profit, or to obtain the ordinary rate of profit with a
less degree of exertion for improving and cheapening their commodity. In
these several modes, taxes on commodities often cost to the consumer,
through the increased price of the article, much more than they bring into
the treasury of the state. There is still another consideration: the
higher price necessitated by the tax almost always checks the demand for
the commodity; and, since there are many improvements in production which,
to make them practicable, require a certain extent of demand, such
improvements are obstructed, and many of them prevented altogether. It is
a well-known fact that the branches of production in which fewest
improvements are made are those with which the revenue-officer interferes;
and that nothing, in general, gives a greater impulse to improvements in
the production of a commodity than taking off a tax which narrowed the
market for it.
§ 3. Peculiar effects of taxes on Necessaries.
Such are the effects of taxes on commodities, considered generally; but,
as there are some commodities (those composing the necessaries of the
laborer) of which the values have an influence on the distribution of
wealth among different classes of the community, it is requisite to trace
the effects of taxes on those particular articles somewhat further. If a
tax be laid, say on corn, and the price rises in proportion to the tax,
the rise of price may operate in two ways: First, it may lower the
condition of the laboring-classes; temporarily, indeed, it can scarcely
fail to do so. If it diminishes their consumption of the produce of the
earth, or makes them resort to a food which the soil produces more
abundantly, and therefore more cheaply, it to that extent contributes to
throw back agriculture upon more fertile lands or less costly processes,
and to lower the value and price of corn; which therefore ultimately
settles at a price, increased not by the whole amount of the tax, but by
only a part of its amount. Secondly, however, it may happen that the
dearness of the taxed food does not lower the habitual standard of the
laborer’s requirements, but that wages, on the contrary, through an action
on population, rise, in shorter or longer periods, so as to compensate the
laborers for their portion of the tax, the compensation being of course at
the expense of profits. Taxes on necessaries must thus have one of two
effects: either they lower the condition of the laboring-classes, or they
exact from the owners of capital, in addition to the amount due to the
state on their own necessaries, the amount due on those consumed by the
laborers. In the last case, the tax on necessaries, like a tax on wages,
is equivalent to a peculiar tax on profits; which is, like all other
partial taxation, unjust, and is specially prejudicial to the increase of
the national wealth.
It remains to speak of the effect on rent. Assuming (what is usually the
fact) that the consumption of food is not diminished, the same cultivation
as before will be necessary to supply the wants of the community; the
margin of cultivation, to use Dr. Chalmers’s expression, remains where it
was; and the same land or capital, which, as the least productive, already
regulated the value and price of the whole produce, will continue to
regulate them. The effect which a tax on agricultural produce will have on
rent depends on its affecting or not affecting the difference between the
return to this least productive land or capital and the returns to other
lands and capitals. Now, this depends on the manner in which the tax is
imposed. If it is an _ad valorem_ tax, or, what is the same thing, a fixed
proportion of the produce, such as tithe for example, it evidently lowers
corn-rents. For it takes more corn from the better lands than from the
worse, and exactly in the degree in which they are better, land of twice
the productiveness paying twice as much to the tithe. Whatever takes more
from the greater of two quantities than from the less, diminishes the
difference between them. The imposition of a tithe on corn would take a
tithe also from corn-rent: for, if we reduce a series of numbers by a
tenth each, the differences between them are reduced one tenth.
For example, let there be five qualities of land, which severally yield,
on the same extent of ground and with the same expenditure, 100, 90, 80,
70, and 60 bushels of wheat, the last of these being the lowest quality
which the demand for food renders it necessary to cultivate. The rent of
these lands will be as follows:
The land producing 100 bushels will yield a rent of 100-60, or 40
bushels.
That producing 90 bushels, a rent of 90-60, or 30 bushels.
That producing 80 bushels, a rent of 80-60, or 20 bushels.
That producing 70 bushels, a rent of 70-60, or 10 bushels.
That producing 60 bushels, will yield no rent.
Now let a tithe be imposed, which takes from these five pieces of land 10,
9, 8, 7, and 6 bushels respectively, the fifth quality still being the one
which regulates the price, but returning to the farmer, after payment of
tithe, no more than 54 bushels:
The land producing 100 bushels reduced to 90 will yield a rent of 90-54,
or 36 bushels.
That producing 90 bushels reduced to 81, a rent of 81-54, or 27 bushels.
That producing 80 bushels reduced to 72, a rent of 72-54, or 18 bushels.
That producing 70 bushels reduced to 63, a rent of 63-54, or 9 bushels.
and that producing 60 bushels, reduced to 54, will yield, as before, no
rent. So that the rent of the first quality of land has lost four bushels;
of the second, three; of the third, two; and of the fourth, one: that is,
each has lost exactly one tenth. A tax, therefore, of a fixed proportion
of the produce lowers, in the same proportion, corn-rent.
But it is only corn-rent that is lowered, and not rent estimated in money,
or in any other commodity. For, in the same proportion as corn-rent is
reduced in quantity, the corn composing it is raised in value. Under the
tithe, 54 bushels will be worth in the market what 60 were before; and
nine tenths will in all cases sell for as much as the whole ten tenths
previously sold for. The landlords will therefore be compensated in value
and price for what they lose in quantity, and will suffer only so far as
they consume their rent in kind, or, after receiving it in money, expend
it in agricultural produce; that is, they only suffer as consumers of
agricultural produce, and in common with all the other consumers.
Considered as landlords, they have the same income as before; the tithe,
therefore, falls on the consumer, and not on the landlord.
The same effect would be produced on rent if the tax, instead of being a
fixed proportion of the produce, were a fixed sum per quarter or per
bushel. A tax which takes a shilling for every bushel takes more shillings
from one field than from another, just in proportion as it produces more
bushels; and operates exactly like tithe, except that tithe is not only
the same proportion on all lands, but is also the same proportion at all
times, while a fixed sum of money per bushel will amount to a greater or
less proportion, according as corn is cheap or dear.
There are other modes of taxing agriculture, which would affect rent
differently. A tax proportioned to the rent would fall wholly on the rent,
and would not at all raise the price of corn, which is regulated by the
portion of the produce that pays no rent. A fixed tax of so much per
cultivated acre, without distinction of value, would have effects directly
the reverse. Taking no more from the best qualities of land than from the
worst, it would leave the differences the same as before, and consequently
the same corn-rents, and the landlords would profit to the full extent of
the rise of price. To put the thing in another manner: the price must rise
sufficiently to enable the worst land to pay the tax, thus enabling all
lands which produce more than the worst to pay not only the tax, but also
an increased rent to the landlords. These, however, are not so much taxes
on the produce of land as taxes on the land itself. Taxes on the produce,
properly so called, whether fixed or _ad valorem_, do not affect rent, but
fall on the consumer, profits, however, generally bearing either the whole
or the greatest part of the portion which is levied on the consumption of
the laboring-classes.
§ 4. —how modified by the tendency of profits to a minimum.
The preceding is, I apprehend, a correct statement of the manner in which
taxes on agricultural produce operate when first laid on. When, however,
they are of old standing, their effect may be different. Now, the effect
of accumulation, when attended by its usual accompaniment, an increase of
population, is to increase the value and price of food, to raise rent, and
to lower profits; that is, to do precisely what is done by a tax on
agricultural produce, except that this does not raise rent. The tax,
therefore, merely anticipates the rise of price and fall of profits which
would have taken place ultimately through the mere progress of
accumulation, while it at the same time prevents, or at least retards,
that progress. If the rate of profit was such that the effect of the tithe
reduces it to the practical minimum, after a lapse of time which would
have admitted of a rise of one tenth from the natural progress of wealth,
the consumer will be paying no more than he would have paid if the tithe
had never existed; he will have ceased to pay any portion of it, and the
person who will really pay it is the landlord, whom it deprives of the
increase of rent which would by that time have accrued to him. At every
successive point in this interval of time, less of the burden will rest on
the consumer, and more of it on the landlord; and, in the ultimate result,
the minimum of profits will be reached with a smaller capital and
population and a lower rental than if the course of things had not been
disturbed by the imposition of the tax. If, on the other hand, the tithe
or other tax on agricultural produce does not reduce profits to the
minimum, but to something above the minimum, accumulation will not be
stopped, but only slackened; and, if population also increases, the
twofold increase will continue to produce its effects—a rise of the price
of corn and an increase of rent. These consequences, however, will not
take place with the same rapidity as if the higher rate of profit had
continued. At the end of twenty years the country will have a smaller
population and capital than, but for the tax, it would by that time have
had; the landlords will have a smaller rent, and the price of corn, having
increased less rapidly than it would otherwise have done, will not be so
much as a tenth higher than what, if there had been no tax, it would by
that time have become. A part of the tax, therefore, will already have
ceased to fall on the consumer and devolved upon the landlord, and the
proportion will become greater and greater by lapse of time.
But though tithes and other taxes on agricultural produce, when of long
standing, either do not raise the price of food and lower profits at all,
or, if at all, not in proportion to the tax, yet the abrogation of such
taxes, when they exist, does not the less diminish price, and, in general,
raise the rate of profit. The abolition of a tithe takes one tenth from
the cost of production, and consequently from the price, of all
agricultural produce; and, unless it permanently raises the laborer’s
requirements, it lowers the cost of labor and raises profits. Rent,
estimated in money or in commodities, generally remains as before;
estimated in agricultural produce, it is raised. The country adds as much,
by the repeal of a tithe, to the margin which intervenes between it and
the stationary state as was cut off from that margin by the tithe when
first imposed. Accumulation is greatly accelerated, and, if population
also increases, the price of corn immediately begins to recover itself and
rent to rise, thus gradually transferring the benefit of the remission
from the consumer to the landlord.
§ 5. Effects of discriminating Duties.
We have hitherto inquired into the effects of taxes on commodities, on the
assumption that they are levied impartially on every mode in which the
commodity can be produced or brought to market. Another class of
considerations is opened, if we suppose that this impartiality is not
maintained, and that the tax is imposed, not on the commodity, but on some
particular mode of obtaining it.
Suppose that a commodity is capable of being made by two different
processes—as a manufactured commodity may be produced either by hand or by
steam-power—sugar may be made either from the sugar-cane or from
beet-root, cattle fattened either on hay and green crops or on oil-cake
and the refuse of breweries. It is the interest of the community that, of
the two methods, producers should adopt that which produces the best
article at the lowest price. This being also the interest of the
producers, unless protected against competition, and shielded from the
penalties of indolence, the process most advantageous to the community is
that which, if not interfered with by Government, they ultimately find it
to their advantage to adopt. Suppose, however, that a tax is laid on one
of the processes, and no tax at all, or one of smaller amount, on the
other. If the taxed process is the one which the producers would not have
adopted, the measure is simply nugatory. But if the tax falls, as it is of
course intended to do, upon the one which they would have adopted, it
creates an artificial motive for preferring the untaxed process, though
the inferior of the two. If, therefore, it has any effect at all, it
causes the commodity to be produced of worse quality, or at a greater
expense of labor; it causes so much of the labor of the community to be
wasted, and the capital employed in supporting and remunerating that labor
to be expended as uselessly as if it were spent in hiring men to dig holes
and fill them up again. This waste of labor and capital constitutes an
addition to the cost of production of the commodity, which raises its
value and price in a corresponding ratio, and thus the owners of the
capital are indemnified. The loss falls on the consumers; though the
capital of the country is also eventually diminished, by the diminution of
their means of saving, and, in some degree, of their inducements to save.
The kind of tax, therefore, which comes under the general denomination of
a discriminating duty, transgresses the rule that taxes should take as
little as possible from the taxpayer beyond what they bring into the
treasury of the state. A discriminating duty makes the consumer pay two
distinct taxes, only one of which is paid to the Government, and that
frequently the less onerous of the two. If a tax were laid on sugar
produced from the cane, leaving the sugar from beet-root untaxed, then in
so far as cane-sugar continued to be used, the tax on it would be paid to
the treasury, and might be as unobjectionable as most other taxes; but if
cane-sugar, having previously been cheaper than beet-root sugar, was now
dearer, and beet-root sugar was to any considerable amount substituted for
it, and fields laid out and manufactories established in consequence, the
Government would gain no revenue from the beet-root sugar, while the
consumers of it would pay a real tax. They would pay for beet-root sugar
more than they had previously paid for cane-sugar, and the difference
would go to indemnify producers for a portion of the labor of the country
actually thrown away, in producing by the labor of (say) three hundred men
what could be obtained by the other process with the labor of two hundred.
An interesting illustration, in late years, of the operation of a
discriminating duty is to be found in the case of different grades
of sugar imported into the United States. Our tariff levied
certain duties on different grades of sugar classified by color,
on the theory that color was a test of saccharine strength.
Cargoes were examined and compared with graded sugars hermetically
sealed in glass bottles and distributed by the Dutch authorities,
whence came the name of “Dutch standard.” Grades from No. 1
(melado) to No. 10 must go to the refiner before consumption; but
the grades to No. 13, although some might have gone into immediate
consumption, were usually sent to be manufactured into the highest
grades of soft and hard sugars. So long as the sugar was secured
by evaporation in open coppers, or by passing the molasses through
a layer of clay, saccharine strength and color went fairly well
together. But with the invention of the vacuum-pan and the
centrifugal wheel, by which the sugar is reduced through a shorter
and more effective process, sugar of a certain grade of color by
the Dutch standard contained a much greater degree of sweetness
than that produced by the old methods. Cuban planters, therefore,
were permitted to send sugar into this country at a duty which was
really levied on grades much inferior, and so paid a less duty
than other sugars. The products of one country were discriminated
against in favor of another. The difficulty was settled by using
the polariscope, which gave an absolute chemical test of the
sweetness, irrespective of color.
One of the commonest cases of discriminating duties is that of a tax on
the importation of a commodity capable of being produced at home,
unaccompanied by an equivalent tax on the home production. A commodity is
never permanently imported, unless it can be obtained from abroad at a
smaller cost of labor and capital, on the whole, than is necessary for
producing it. If, therefore, by a duty on the importation, it is rendered
cheaper to produce the article than to import it, an extra quantity of
labor and capital is expended, without any extra result. The labor is
useless, and the capital is spent in paying people for laboriously doing
nothing. All custom duties which operate as an encouragement to the home
production of the taxed article are thus an eminently wasteful mode of
raising a revenue.
This character belongs in a peculiar degree to custom duties on the
produce of land, unless countervailed by excise duties on the home
production. Such taxes bring less into the public treasury, compared with
what they take from the consumers, than any other imposts to which
civilized nations are usually subject. If the wheat produced in a country
is twenty millions of quarters, and the consumption twenty-one millions, a
million being annually imported, and if on this million a duty is laid
which raises the price ten shillings per quarter, the price which is
raised is not that of the million only, but of the whole twenty-one
millions. Taking the most favorable but extremely improbable supposition,
that the importation is not at all checked, nor the home production
enlarged, the state gains a revenue of only half a million, while the
consumers are taxed ten millions and a half, the ten millions being a
contribution to the home growers, who are forced by competition to resign
it all to the landlords. The consumer thus pays to the owners of land an
additional tax, equal to twenty times that which he pays to the state. Let
us now suppose that the tax really checks importation. Suppose importation
stopped altogether in ordinary years; it being found that the million of
quarters can be obtained, by a more elaborate cultivation, or by breaking
up inferior land, at a less advance than ten shillings upon the previous
price—say, for instance, five shillings a quarter. The revenue now obtains
nothing, except from the extraordinary imports which may happen to take
place in a season of scarcity. But the consumers pay every year a tax of
five shillings on the whole twenty-one millions of quarters, amounting to
￡5,250,000 sterling. Of this the odd ￡250,000 goes to compensate the
growers of the last million of quarters for the labor and capital wasted
under the compulsion of the law. The remaining ￡5,000,000 go to enrich the
landlords as before.
Such is the operation of what are technically termed corn laws, when first
laid on; and such continues to be their operation so long as they have any
effect at all in raising the price of corn. The difference between a
country without corn laws and a country which has long had corn laws is
not so much that the last has a higher price or a larger rental, but that
it has the same price and the same rental with a smaller aggregate capital
and a smaller population. The imposition of corn laws raises rents, but
retards that progress of accumulation which would in no long period have
raised them fully as much. The repeal of corn laws tends to lower rents,
but it unchains a force which, in a progressive state of capital and
population, restores and even increases the former amount.
What we have said of duties on importation generally is equally applicable
to discriminating duties which favor importation from one place, or in one
particular manner, in contradistinction to others; such as the preference
given to the produce of a colony, or of a country with which there is a
commercial treaty; or the higher duties formerly imposed by our navigation
laws on goods imported in other than British shipping. Whatever else may
be alleged in favor of such distinctions, whenever they are not nugatory,
they are economically wasteful. They induce a resort to a more costly mode
of obtaining a commodity in lieu of one less costly, and thus cause a
portion of the labor which the country employs in providing itself with
foreign commodities to be sacrificed without return.
§ 6. Effects produced on international Exchange by Duties on Exports and
on Imports.
There is one more point, relating to the operation of taxes on commodities
conveyed from one country to another, which requires notice: the
influences which they exert on international exchanges. Every tax on a
commodity tends to raise its price, and consequently to lessen the demand
for it in the market in which it is sold. All taxes on international trade
tend, therefore, to produce a disturbance, and a readjustment of what we
have termed the equation of international demand.
Taxes on foreign trade are of two kinds—taxes on imports and on exports.
On the first aspect of the matter it would seem that both these taxes are
paid by the consumers of the commodity; that taxes on exports consequently
fall entirely on foreigners, taxes on imports wholly on the home consumer.
The true state of the case, however, is much more complicated.
“By taxing exports we may, in certain circumstances, produce a division of
the advantage of the trade more favorable to ourselves. In some cases we
may draw into our coffers, at the expense of foreigners, not only the
whole tax, but more than the tax; in other cases we should gain exactly
the tax; in others, less than the tax. In this last case a part of the tax
is borne by ourselves; possibly the whole, possibly even, as we shall
show, more than the whole.”
Reverting to the supposititious case employed of a trade between England
and the United States in iron and corn, suppose that the United States
taxes her export of corn, the tax not being supposed high enough to induce
England to produce corn for herself. The price at which corn can be sold
in England is augmented by the tax. This will probably diminish the
quantity consumed. It may diminish it so much that, even at the increased
price, there will not be required so great a money value as before. Or it
may not diminish it at all, or so little that, in consequence of the
higher price, a greater money value will be purchased than before. In this
last case, the United States will gain, at the expense of England, not
only the whole amount of the duty, but more; for, the money value of her
exports to England being increased, while her imports remain the same,
money will flow into the United States from England. The price of corn
will rise in the United States, and consequently in England; but the price
of iron will fall in England, and consequently in the United States. We
shall export less corn and import more iron, till the equilibrium is
restored. It thus appears (what is at first sight somewhat remarkable)
that, by taxing her exports, the United States would, in some conceivable
circumstances, not only gain from her foreign customers the whole amount
of the tax, but would also get her imports cheaper. She would get them
cheaper in two ways, for she would obtain them for less money, and would
have more money to purchase them with. England, on the other hand, would
suffer doubly: she would have to pay for her corn a price increased not
only by the duty, but by the influx of money into the United States, while
the same change in the distribution of the circulating medium would leave
her less money to purchase it with.(344)
This, however, is only one of three possible cases. If, after the
imposition of the duty, England requires so diminished a quantity of corn
that its total value is exactly the same as before, the balance of trade
would be undisturbed; the United States will gain the duty, England will
lose it, and nothing more. If, again, the imposition of the duty occasions
such a falling off in the demand that England requires a less pecuniary
value than before, our exports will no longer pay for our imports; money
must pass from the United States into England; and England’s share of the
advantage of the trade will be increased. By the change in the
distribution of money, corn will fall in the United States, and therefore
it will, of course, fall in England. Thus England will not pay the whole
of the tax. From the same cause, iron will rise in England, and
consequently in the United States. When this alteration of prices has so
adjusted the demand that the corn and the iron again pay for one another,
the result is that England has paid only a part of the tax, and the
remainder of what has been received into our treasury has come indirectly
out of the pockets of our own consumers of iron, who pay a higher price
for that imported commodity in consequence of the tax on our exports,
while at the same time they, in consequence of the efflux of money and the
fall of prices, have smaller money incomes wherewith to pay for the iron
at that advanced price.
It is not an impossible supposition that by taxing our exports we might
not only gain nothing from the foreigner, the tax being paid out of our
own pockets, but might even compel our own people to pay a second tax to
the foreigner. Suppose, as before, that the demand of England for corn
falls off so much on the imposition of the duty that she requires a
smaller money value than before, but that the case is so different with
iron in the United States that when the price rises the demand either does
not fall off at all, or so little that the money value required is greater
than before. The first effect of laying on the duty is, as before, that
the corn exported will no longer pay for the iron imported.
Money will therefore flow out of the United States into England. One
effect is to raise the price of iron in England, and consequently in the
United States. But this, by the supposition, instead of stopping the
efflux of money, only makes it greater; because, the higher the price, the
greater the money value of the iron consumed. The balance, therefore, can
only be restored by the other effect, which is going on at the same time,
namely, the fall of corn in the American and consequently in the English
market. Even when corn has fallen so low that its price with the duty is
only equal to what its price without the duty was at first, it is not a
necessary consequence that the fall will stop; for the same amount of
exportation as before will not now suffice to pay the increased money
value of the imports; and although the English consumers have now not only
corn at the old price, but likewise increased money incomes, it is not
certain that they will be inclined to employ the increase of their incomes
in increasing their purchases of corn. The price of corn, therefore, must
perhaps fall, to restore the equilibrium, more than the whole amount of
the duty; England may be enabled to import corn at a lower price when it
is taxed than when it was untaxed; and this gain she will acquire at the
expense of the American consumers of iron, who, in addition, will be the
real payers of the whole of what is received at their own custom-house
under the name of duties on the export of corn.
In general, however, there could be little doubt that a country which
imposed such taxes would succeed in making foreign countries contribute
something to its revenue; but, unless the taxed article be one for which
their demand is extremely urgent, they will seldom pay the whole of the
amount which the tax brings in.(345)
The result of this investigation may, then, be generally
formulated as follows: That country which has the strongest demand
for the commodities of other countries as compared with the demand
of other countries for its own commodities will pay the burden of
the export duty.
Thus far of duties on exports. We now proceed to the more ordinary case of
duties on imports: “We have had an example of a tax on exports, that is,
on foreigners, falling in part on ourselves. We shall therefore not be
surprised if we find a tax on imports, that is, on ourselves, partly
falling upon foreigners.
“Instead of taxing the corn which we export, suppose that we tax the iron
which we import. The duty which we are now supposing must not be what is
termed a protecting duty, that is, a duty sufficiently high to induce us
to produce the article at home. If it had this effect, it would destroy
entirely the trade both in corn and in iron, and both countries would lose
the whole of the advantage which they previously gained by exchanging
those commodities with one another. We suppose a duty which might diminish
the consumption of the article, but which would not prevent us from
continuing to import, as before, whatever iron we did consume.
“The equilibrium of trade would be disturbed if the imposition of the tax
diminished, in the slightest degree, the quantity of iron consumed. For,
as the tax is levied at our own custom-house, the English exporter only
receives the same price as formerly, though the American consumer pays a
higher one. If, therefore, there be any diminution of the quantity bought,
although a larger sum of money may be actually laid out in the article, a
smaller one will be due from the United States to England: this sum will
no longer be an equivalent for the sum due from England to the United
States for corn, the balance therefore must be paid in money. Prices will
fall in England and rise in the United States; iron will fall in the
English market; corn will rise in the American. The English will pay a
higher price for corn, and will have smaller money incomes to buy it with;
while the Americans will obtain iron cheaper, that is, its price will
exceed what it previously was by less than the amount of the duty, while
their means of purchasing it will be increased by the increase of their
money incomes.
“If the imposition of the tax does not diminish the demand, it will leave
the trade exactly as it was before. We shall import as much, and export as
much; the whole of the tax will be paid out of our own pockets.
“But the imposition of a tax on a commodity almost always diminishes the
demand more or less; and it can never, or scarcely ever, increase the
demand. It may, therefore, be laid down as a principle that a tax on
imported commodities, when it really operates as a tax, and not as a
prohibition either total or partial, almost always falls in part upon the
foreigners who consume our goods; and that this is a mode in which a
nation may appropriate to itself, at the expense of foreigners, a larger
share than would otherwise belong to it of the increase in the general
productiveness of the labor and capital of the world, which results from
the interchange of commodities among nations.”
Those are, therefore, in the right who maintain that taxes on imports are
partly paid by foreigners; but they are mistaken when they say that it is
by the foreign producer. It is not on the person from whom we buy, but on
all those who buy from us, that a portion of our custom duties
spontaneously falls. It is the foreign consumer of our exported
commodities who is obliged to pay a higher price for them because we
maintain revenue duties on foreign goods.
There are but two cases in which duties on commodities can in any degree,
or in any manner, fall on the producer. One is, when the article is a
strict monopoly, and at a scarcity price. The price in this case being
only limited by the desires of the buyer—the sum obtained for the
restricted supply being the utmost which the buyers would consent to give
rather than go without it—if the treasury intercepts a part of this, the
price can not be further raised to compensate for the tax, and it must be
paid from the monopoly profits. A tax on rare and high-priced wines will
fall wholly on the growers, or rather, on the owners of the vineyards. The
second case, in which the producer sometimes bears a portion of the tax,
is more important: the case of duties on the produce of land or of mines.
These might be so high as to diminish materially the demand for the
produce, and compel the abandonment of some of the inferior qualities of
land or mines. Supposing this to be the effect, the consumers, both in the
country itself and in those which dealt with it, would obtain the produce
at smaller cost; and a part only, instead of the whole, of the duty would
fall on the purchaser, who would be indemnified chiefly at the expense of
the land-owners or mine-owners in the producing country.
Duties on importation may, then, be divided “into two classes: (1) those
which have the effect of encouraging some particular branch of domestic
industry [protective duties], (2) and those which have not [revenue
duties]. The former are purely mischievous, both to the country imposing
them and to those with whom it trades. They prevent a saving of labor and
capital, which, if permitted to be made, would be divided in some
proportion or other between the importing country and the countries which
buy what that country does or might export.
“The other class of duties are those which do not encourage one mode of
procuring an article at the expense of another, but allow interchange to
take place just as if the duty did not exist, and to produce the saving of
labor which constitutes the motive to international as to all other
commerce. Of this kind are duties on the importation of any commodity
which could not by any possibility be produced at home, and duties not
sufficiently high to counterbalance the difference of expense between the
production of the article at home and its importation. Of the money which
is brought into the treasury of any country by taxes of this last
description, a part only is paid by the people of that country; the
remainder by the foreign consumers of their goods.
“Nevertheless, this latter kind of taxes are in principle as ineligible as
the former, though not precisely on the same ground. A protecting duty can
never be a cause of gain, but always and necessarily of loss, to the
country imposing it, just so far as it is efficacious to its end. A
non-protecting duty, on the contrary, would in most cases be a source of
gain to the country imposing it, in so far as throwing part of the weight
of its taxes upon other people is a gain; but it would be a means which it
could seldom be advisable to adopt, being so easily counteracted by a
precisely similar proceeding on the other side.
“If the United States, in the case already supposed, sought to obtain for
herself more than her natural share of the advantage of the trade with
England, by imposing a duty upon iron, England would only have to impose a
duty upon corn sufficient to diminish the demand for that article about as
much as the demand for iron had been diminished in the United States by
the tax. Things would then be as before, and each country would pay its
own tax—unless, indeed, the sum of the two duties exceeded the entire
advantage of the trade, for in that case the trade and its advantage would
cease entirely.
“There would be no advantage, therefore, in imposing duties of this kind
with a view to gain by them in the manner which has been pointed out. But,
when any part of the revenue is derived from taxes on commodities, these
may often be as little objectionable as the rest. It is evident, too, that
considerations of reciprocity, which are quite unessential when the matter
in debate is a protecting duty, are of material importance when the repeal
of duties of this other description is discussed. A country can not be
expected to renounce the power of taxing foreigners unless foreigners will
in return practice toward itself the same forbearance. The only mode in
which a country can save itself from being a loser by the revenue duties
imposed by other countries on its commodities is, to impose corresponding
revenue duties on theirs. Only it must take care that those duties be not
so high as to exceed all that remains of the advantage of the trade, and
put an end to importation altogether, causing the article to be either
produced at home, or imported from another and a dearer market.”
By “reciprocity” is meant that, when one country admits goods free
of duty from a second country, this latter country will also admit
the commodities of the former free of duty; or, as is often the
case, if not free of duty, at a less than the usual rate. Until
the last few years we have had a reciprocity treaty with Canada,
but it is not now in force; and an arrangement for closer
commercial relations with Mexico is now under consideration. |
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