The Online Library of Liberty

A project of Liberty Fund, Inc.

• Preface.
• Advertisement.
• Letters, &c.
• Letter I.
• Letter II.
• Letter III.
• Letter IV.
• Letter V.
• Advertisement.
• Catechism of Political Economy; Or, Familiar Conversations On the Manner In Which Wealth Is Produced, Distributed, and Consumed.
• Chapter the First.: On the Composition of Wealth and the Use of Money.
• Chapter II.: On the Utility and Value of Products.
• Chapter III.: On Production.
• Chapter IV.: On the Operations Common to All the Species of Industry.
• Chapter V.: On Capital and Land.
• Chapter VI.: On the Formation of Capital.
• Chapter VII.: On the Manner In Which the Value of Products Is Established, and of the Charges of Production.
• Chapter VIII.: On the Profits of Industry, Capital, and Land; That Is, Income.
• Chapter IX.: On Wages, Interest, and Rent.
• Chapter X.: On Incomes Founded On Immaterial Products.
• Chapter XI.: On Consumption In General.
• Chapter XII.: On Private Consumption.
• Chapter XIII.: On Public Consumption.
• Chapter XIV.: On Public Property and Taxes.
• Chapter XV.: On Public Loans.
• Chapter XVI.: On Property, and the Nature of Riches.
• Chapter XVII.: On the Real and Nominal Price.
• Chapter XVIII.: On Money.
• Chapter XIX.: On Signs Representing Money.
• Chapter XX.: On Markets.
• Chapter XXI.: On Regulations Or Restraints of Industry.
• Chapter XXII.: On Importations, Duties, and Prohibitions.
• Chapter XXIII.: On Exportation.
• Chapter XXIV.: On Population.
• Chapter XXV.: On Colonies.
• Erratum.

CHAPTER XIV.

On Public Property and Taxes.

From whence are the values derived which serve for the public consumptions?

They are derived either from the revenues of property belonging to the public, or from taxes.

What constitutes the revenues of public property?

These properties are either, capital or freehold property, but most generally freehold property, land, houses, &c. which the government let, and the revenue of which it consumes for the advantage of the public. When it consists of forests, it sells the annual felling; when capital it lends it at interest, but this last case is very rare.

Who is it that pays the taxes?

The individuals who in this respect we call contributors.

Where do the contributors get the values with which they pay the taxes?

They take these values from the products which belong to them, or which comes to the same thing, from the money which they procure by the exchange of these products.

Are these products the fruit of the annual productions?

They are sometimes the products of the year, which form part of the income of individuals, and sometimes former products, which they employ as productive capitals.

In what case do the contributors take from their capitals to pay the taxes?

When their incomes are not sufficient. And in this case the taxes dry up one of the sources of revenue, and one of the means of the industry of society.

Give me an example in which the taxes are discharged with a portion of capital.

If a man whose income is absorbed by the ordinary contributions, together with the maintenance of his family, comes to an heritance, and as an heir he is bound to pay impost, it must be taken out of his inheritance; the capital in the hands of the heir is therefore no longer so considerable as it was in the hands of the deceased. Similar observations may be made on the expenses of proceedings at law, bonds, securities, &c. In all these cases the tax paid by the contributor is withdrawn from the mass of capital usefully employed, and is so much capital devoted to consumption, and actually disappears. This happens also in cases where the profits are small and the impost considerable; many contributors cannot in that case discharge the taxes without breaking in upon their capitals.

The major part of the taxes are however taken from incomes?

Yes: for if the taxes dry up too completely the sources of production, they would diminish more and more every day the products with which alone they could be paid.

If there are some of them which break into the capital of individuals, how happens it that the means of production are not destroyed in the long run?

Because at the same time that some individuals break into their capitals, those of others are increased by saving.

Do not the taxes serve, on the other hand, to multiply products by compelling the contributors to produce, in order to be able to pay them?

The hope of enjoying the products one has created is a much stronger incitement to production than the idea of satisfying the tax gatherer. But if the impost should excite the desire of producing more it does not afford the means. In order to extend production it is necessary to increase capital, which is the more impossible, as the necessity of paying the tax prevents the saving, which alone creates capital. In short, if the necessity of paying the taxes should excite efforts which augment production, there will not result from it any increase of the general riches, since what is raised by the impost is consumed, and does not serve to increase any saving. Thus it may be seen that great taxes are destructive of public prosperity instead of being favourable to it.

Which are the principal kinds of taxes levied for this purpose?

Sometimes they are exacted from the contributors at so much per head, as in the capitation tax. Sometimes as in the land tax, they take a part of the revenue arising from the lands; which are valued, either after the actual rent or after the extent and fertility of the soil. Sometimes the rent of a house, the number of its doors and windows, and of the servants and horses kept by the contributor, serve as a basis for the amount of his contribution. Sometimes, his profits are valued according to the industry he carries on: from hence the impost on licences (patentes). All these contributions bear the name of direct taxes, because they are demanded, directly, of the contributor in person.

Are not all taxes demanded directly from the contributor?

They are sometimes demanded, not from the payer, but are included in the price of the merchandize on which the impost is laid, and without the receiver knowing even the name of the contributor. For this reason they are called indirect taxes.

When and in what manner are taxes levied on merchandize?

They are sometimes levied at the instant in which they are produced, like the salt in France, or the gold and silver mines in Mexico. A portion of the value of these merchandize is levied at the moment of their extraction. Sometimes a duty is levied at the moment of their transportation from one place to another, as in the instance of import duties; and in the “Octroi,” which is paid in France at the entrance of towns: sometimes at the moment of consumption, as for stamps and admissions to the theatres.

Does the amount of the impost remain at the expense of those who pay it?

No: they endeavour to reimburse themselves at least in part from those who purchase the products in the creation of which the contributors have assisted.

Do the contributors always succeed in thus shifting the burden from themselves?

They seldom succeed completely, because they cannot do so without raising the price of their products; and a rise of price always diminishes the consumption of a product by putting it out of the reach of some of its consumers. The demand for this sort of product then diminishes, and its price falls. The price not then affording so liberal a remuneration for the productive services devoted to this object, the quantity of it is lessened. Thus when an import duty is laid on cotton, the manufacturers of cottons and the tradesmen who sell them cannot raise the price so high as to recover back the amount of the taxes; for that purpose it would be necessary that the same quantity of cotton goods should be demanded and sold, and that the society should devote to the purchase of this particular article more values than it had heretofore devoted to it, which is not possible. The cotton goods become dearer; their producers gain less, and this kind of production declines.

What consequence do you draw from that?

That the impost is paid partly by the producers, whose profits, i. e. whose incomes it lessens; and partly by those consumers who continue to purchase notwithstanding the dearness, since they pay more for a product, which in point of fact is not more valuable.

What other consequence do you draw faom it?

That the impost, in making the products dearer, does not augment even nominally the total value of productions; for the products diminish in quantity more than they augment in price.

Does this effect take place with respect to any other merchandize than that on which the impost is levied?

It takes place on all the merchandise which the contributor sells. Brewers and bakers sell their products dearer when a tax is laid on the wood or coals which they burn. A tax on meat and other eatables at the gates of a city renders all its manufactured products dearer.

Can all producers make the consumers bear a portion of the imposts which they are compelled to pay?

There are producers who cannot. An impost laid on an article of luxury bears only on those who consume it. If a tax is laid on lace, the wine merchant whose wife wears lace, cannot sell his wine dearer on that account, for he could not maintain a competition with his neighbour whose wife does not wear lace. A landholder cannot in general make his consumers bear any portion of the tax he is compelled to pay.*

In order not to deceive ourselves as to the effect of taxes, how ought we to consider them?

As a cause of the destruction of part of the products of society. This destruction takes place at the expense of those who are unable to evade or shift it from themselves. The producers and consumers pay the value of the products thus destroyed; the first, in not selling their products at a price sufficient to cover the taxes; the second, in paying more for them than they are worth, but in proportions which vary with every article and every class of individuals.

We may also consider the impost as an augmentation of the charges of production. It is an expense sustained by the producers and consumers; but which while it renders the products dearer, does not augment the incomes of the producers, as its amount is not divided among them. Their expenses augment as consumers without their incomes increasing as producers: they are not so rich.

What is to be understood by a subject of taxation?

By those words, is often meant, the merchandise which serves as a basis for the tax. Brandy, in this sense, is a “subject of taxation,” by means of the duties which are levied on this liquor. But the expression is not correct. Brandy is only a basis for the demand of a value; a merchandise which the government uses as a means of raising money. The true subject of taxation is, in this case, the income of the individuals who manufacture and consume the brandy. Thus the subject of taxation increases, when these incomes, whatever be their source, are augmented.

What do you conclude from that?

That every thing which tends to increase the riches of a nation extends and multiplies the subject of taxation. It is from this cause, that as a country prospers the amount of the taxes increases, without increasing the rate of them; and diminishes when it declines.

Are we justified in considering the amount of the taxes as part of the income of a nation?

Never, for they are values not created but transferred. They have formed a part of the incomes of individuals which they have not consumed.

Have not the government other sources of revenue?

Sometimes the government retains the exclusive exercise of a certain industry, and causes it to be paid for beyond its value, as the carriage of letters. In this case the tax does not amount to the whole of the charge for postage, but only to that part which exceeds what it would cost if this service was left open to free competition.

The profits which government sometimes makes on lotteries is of the same kind, but is much less justifiable on many accounts.

[* ]So long as the tax does not absorb the whole of the net profit, or rent of land, it is worth while to cultivate it: consequently the impost does not diminish the quantity of the territorial products which come to market, and this is never a cause of dearness. When the impost is excessive, it surpasses the net produce of the worst lands, and hinders the improvement of others. Thus territorial products become more rare: still this circumstance does not raise the price in a durable manner, because the population is not long before it gets down to the level of the territorial products; if less are offered less are wanted. For this reason, in these countries which produce little corn, it is not dearer than in those that produce much. It is even cheaper, for reasons which cannot be developed here.