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28: Of Taxation, the Source of Public Income - Étienne Bonnot, Abbé de Condillac, Commerce and Government Considered in their Mutual Relationship [1776]

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Commerce and Government Considered in their Mutual Relationship, translated by Shelagh Eltis, with an Introduction to His Life and Contribution to Economics by Shelagh Eltis and Walter Eltis (Indianapolis: Liberty Fund, 2008).

About Liberty Fund:

Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.


28

Of Taxation, the Source of Public Income

In considering how wealth is produced, distributed and preserved we have seen that commerce needs a power to protect it. I call public or state income the revenues one allows this power. It is a matter of knowing why and by whom this must be paid.

A civil society is based on a contract, clear or implied, by which all the citizens undertake, each for his own part, to contribute to the common benefit.

In general, to contribute to this benefit, it is enough to be useful; and one will be, every time one has a position and one fulfils its duties.

This way of contributing is an obligation which all the citizens, without exception, have contracted in coming together in the body of society.

Thus a useless man is not a citizen. Living at society’s expense he does nothing for it: it owes him nothing.

But it is not always enough to have a position and to fulfil its duties. In the government of every civil society there are necessary and indispensable public expenses to which in consequence the citizens must contribute.

They can only do that in two ways: one is by themselves working on public projects, the other is by providing subsistence to those who work. Now since this subsistence and this work can be valued in money, for greater simplicity we shall bring down to a money contribution these two ways of contributing. Such a contribution, if regulated by the nation itself, is called a subsidy or free gift; and if it is imposed by the government, one calls it a tax. You ask who should pay subsidies or taxes?

There are in general only two classes of citizen: that of the landowners to whom all the land and all the products belong; and that of the paid workers who, having neither land nor produce of their own, subsist on the wages that are due for their work.

The first class can easily contribute; since, with all the products belonging to it, if it does not have all the money, it has more than the equivalent* and besides it passes entirely through its hands.

The second class would not be able to do so. It cannot provide subsistence to those who work, because it has absolutely no products of its own. It cannot give them the money they need to buy their subsistence, because the only money it has is its wages; and these wages, reduced to the lowest level by competition, are no more than the exact amount it needs to subsist itself.

Let us stand in the shoes of people who have none of our prejudices, will the first idea that occurs to people such as I have conjured up be to say: “Those who have nothing must contribute to public expenditure like those who possess something”; or else, “Those who have their arms and their hard work as their sole possessions must contribute to public expenditure the money they do not possess?” Now the class of wage earners only earns the money needed for its subsistence, so putting a tax on it is wanting it to pay with money it does not have.

Taxes on industry seem reasonable and fair to us, because, without having thought of the matter, we judge them reasonable and fair whenever they are in the established order. However, this order is often only an abuse. Our behaviour proves it, even when we do not wish to agree.

Indeed, if we go to the merchants on whom a new tax has been imposed, we are not surprised if they want to sell for a higher price. We even reckon that they have good reason, and we pay the price they demand. So we are contradicting ourselves; we want the merchants to contribute to public expenditure, and when they have contributed, we want to reimburse them. Would it not be easier for us to undertake all this expenditure ourselves?

But there are merchants and artisans who are making themselves wealthy. There, no doubt, you have what sustains our prejudice. Well, let us make them contribute, they will ensure that they are reimbursed. It is therefore impossible for them to contribute.

You will probably say that, with the need they have to sell, they will not always succeed in being reimbursed in proportion to the taxes; and that consequently they will bear a part of them.

That may be: but it should be noted that the portion on which they remain taxed will be taken from their wage, and that as a result they will be reduced to consuming less than they would have done. So there you have, in a state such as France, several millions of citizens who are forced to cut back on their consumption. Now I ask whether the land will return the same income, when people sell a smaller amount of their produce to several million citizens. So whether the wage-earners are totally reimbursed, or whether they are only partially reimbursed, it is clear that, in the one case as in the other, the tax that one places on them falls equally on the owners.

Indeed, the landowners must certainly pay for the wage-earning class, since it is the landowners who pay the wages. In a word, no matter how one approaches it, they must pay everything.

Either the country which a nation inhabits supplies in plenty all that is necessary for its citizens’ requirements; or it provides only a part of that, no matter what care one takes over cultivating the land.

In the first case, the nation which is rich through its soil is self-sufficient. But the products which are its entire wealth belong totally and solely to the owners of the lands. So this class alone can bear all public expenditure.

In the second case, I make the assumption that this nation is on not very fertile coasts, whose product is only enough for the subsistence of a tenth of its citizens. Condemned by its soil to poverty, it can only be rich in so far as it takes for itself the products which grow on an alien soil. Now it will obtain them by its industry; or rather it has developed by stages only because it has obtained them gradually. It carries out trade. It is through this that the peoples, who did not trade straight away, or on their own behalf, exchange their surplus; and it finds, in the profits which it makes on the one and the other, the products it needs.

As it is rich simply through its industriousness, it only has a precarious wealth, which will be taken away from it, just as soon as the other peoples should want to carry out their exchanges themselves. It will lose population, to the extent that it loses its trade; and when it has totally lost it, it will find itself reduced to a tenth of its citizens; since we assume that in the product of its own soil it only has the where withal to make that tenth subsist.

But so long as this trade is flourishing, the nine-tenths of the wealth of this nation or of the products it consumes belong to the merchant class which has obtained them from foreign peoples by its own work and industry. If this class were to pay no subsidies, those paid by the landowners would be inadequate to meet public expenditure. So the merchant class must contribute nine-tenths when the landowners contribute one-tenth.

However, when that class pays nine-tenths, the position is that it arranges for them to be paid by the people whose agent it is; and consequently the public expenditure of a merchant state is, for the most part, paid by the owners of lands in foreign countries.

This nation does well to demand subsidies from its traders, since it has no other way to provide for public expenditure. It does all the better, as it is not its landowners who pay for the traders; it is the landowners in other nations. It is precisely on them that it makes the taxes fall back; it is with their products that it subsists, and it makes all the peoples with whom it deals pay taxes.

Such is near enough the position of Holland. So because in this Republic industry pays taxes, one should not conclude from this that industry ought to pay taxes in France.

But you will say, do there not exist in France, as in Holland, traders who cause landowners in foreign countries to pay taxes? There would therefore be the same advantage for France as for Holland to make the traders pay taxes.

My response is that in France the traders will begin by passing the taxes on to native landowners: it is these owners whom they will cause to pay the lion’s share of the tax placed on industry and in consequence they will not pay it themselves. I admit that some will cause foreign landowners to pay a part of it; but this benefit would not be a reason to place taxation on French traders.

If Holland places taxes on traders, it is not because it finds an advantage in taxing foreign nations, it is because it cannot do otherwise.

Indeed, you will agree that this Republic would have a much more flourishing trade if it could exempt those who undertake it from every tax. It cannot: it is forced to demand subsidies on the part of its traders. It is forced to by its very constitution, which is a necessary consequence of its position: in a word it is forced because its subsidies would be inadequate for public expenditure if they were only imposed on the lands. The tax on industry is therefore in its country a vice inherent in the state’s constitution and it must live with this vice. Such is the fate of a nation that has but a precarious wealth.

But France is not forced to place taxes on industry: France, I say, where the land-owning class has all the wealth, and wealth which would certainly be in surplus, if the land were better cultivated.

France is rich in products and the surplus of these products is the stock with which its merchants trade. They export this surplus which would be useless to us, they exchange it, and in bringing us back useful products they increase the sum of our wealth.

Let us tax our traders, they will sell the surplus they export at a higher price, and so buy less; and they will bring back to us in exchange a smaller quantity of foreign merchandise, whose price will rise for us.

So we shall be less rich, since the surplus which ceases to be consumed is no longer reproduced; and we shall be deprived of wealth which it would have procured for us through exchanges. Taxation on industry is always deceptive, because, on all assumptions, it always falls back on the landowners; so it is a vice which must not be suffered, except when it belongs to the very constitution, and cannot be eradicated. It necessarily diminishes consumption; and in reducing consumption it hinders reproduction. Therefore it tends to damage agriculture.

[* ] One must remember that, whatever amount of money there is in a nation, it cannot ever have a value equal to all of its production.