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BOOK V: ON THE INFLUENCE OF GOVERNMENT - John Stuart Mill, The Collected Works of John Stuart Mill, Volume III - Principles of Political Economy Part II 
The Collected Works of John Stuart Mill, Volume III - The Principles of Political Economy with Some of Their Applications to Social Philosophy (Books III-V and Appendices), ed. John M. Robson, Introduction by V.W. Bladen (Toronto: University of Toronto Press, London: Routledge and Kegan Paul, 1965).
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ON THE INFLUENCE OF GOVERNMENT
Of the Functions of Government in General
§ 1. [Necessary and optional functions of government distinguished] One of the most disputed questions both in political science and in practical statesmanship at this particular period, relates to the proper limits of the functions and agency of governments. At other times it has been a subject of controversy how governments should be constituted, and according to what principles and rules they should exercise their authority; but it is now almost equally a question, to what departments of human affairs that authority should extend. And when the tide sets so strongly towards changes in government and legislation, as a means of improving the condition of mankind, this discussion is more likely to increase than to diminish in interest. On the one hand, impatient reformers, thinking it easier and shorter to get possession of the government than of the intellects and dispositions of the public, are under a constant temptation to stretch the province of government beyond due bounds: while, on the other, mankind have been so much accustomed by their rulers to interference for purposes other than the public good, or under an erroneous conception of what that good requires, and so many rash aproposalsa are made by sincere lovers of improvement, for attempting, by compulsory regulation, the attainment of objects which can only be effectually or only usefully compassed by opinion and discussion, that there has grown up a spirit of resistance in limine to the interference of government, merely as such, and a disposition to restrict its sphere of action within the narrowest bounds. From differences in the historical development of different nations, not necessary to be here dwelt upon, the former excess, that of exaggerating the province of government, prevails most, both in theory and in practice, among the Continental nations, while in England the contrary spirit bhas hitherto beenb predominant.
The general principles of the question, in so far as it is a question of principle, I shall make an attempt to determine in a later chapter of this Book: after first considering the effects produced by the conduct of government in the exercise of the functions universally acknowledged to belong to it. For this purpose, there must be a specification of the functions which are either inseparable from the idea of a government, or are exercised habitually and without objection by all governments; as distinguished from those respecting which it has been considered questionable whether governments should exercise them or not. The former may be termed the necessary, the latter the optional, functions of government. cBy the term optional it is not meant to imply, that it can ever be a matter of indifference, or of arbitrary choice, whether the government should or should not take upon itself the functions in question; but only that the expediency of its exercising them does not amount to necessity, and is a subject on which diversity of opinion does or may exist.c
§ 2. [Multifarious character of the necessary functions of government] In attempting to enumerate the necessary functions of government, we find them to be considerably more multifarious than most people are at first aware of, and not capable of being circumscribed by those very definite lines of demarcation, which, in the inconsiderateness of popular discussion, it is often attempted to draw round them. We sometimes, for example, hear it said that governments ought to confine themselves to affording protection against force and fraud: that, these two things apart, people should be free agents, able to take care of themselves, and that so long as a person practises no violence or deception, to the injury of others in person or property, alegislators and governments are in no way called on to concern themselves about hima . But why should people be protected by their government, that is, by their own collective strength, against violence and fraud, and not against other evils, except that the expediency is more obvious? If nothing, but what people cannot possibly do for themselves, can be fit to be done for them by government, people might be required to protect themselves by their skill and courage even against force, or to beg or buy protection against it, as they actually do where the government is not capable of protecting them: and against fraud every one has the protection of his own wits. But without further anticipating the discussion of principles, it is sufficient on the present occasion to consider facts.
Under which of these heads, the repression of force or of fraud, are we to place the operation, for example, of the laws of inheritance? Some such laws must exist in all societies. It may be said, perhaps, that in this matter government has merely to give effect to the disposition which an individual makes of his own property by will. This, however, is at least extremely disputable; there is probably no country by whose laws the power of testamentary disposition is perfectly absolute. And suppose the very common case of there being no will: does not the law, that is, the government, decide on principles of general expediency, who shall take the succession? and in case the successor is in any manner incompetent, does it not appoint persons, frequently officers of its own, to collect the property and apply it to his benefit? There are many other cases in which the government undertakes the administration of property, because the public interest, or perhaps only that of the particular persons concerned, is thought to require it. This is often done in bcaseb of litigated property; and in cases of judicially declared insolvency. It has never been contended that in doing these things, a government exceeds its province.
Nor is the function of the law in defining property itself, so simple a thing as may be supposed. It may be imagined, perhaps, that the law has only to declare and protect the right of every one to what he has himself produced, or acquired by the voluntary consent, fairly obtained, of those who produced it. But is there nothing recognised as property except what has been produced? Is there not the earth itself, its forests and waters, and all other natural riches, above and below the surface? These are the inheritance of the human race, and there must be regulations for the common enjoyment of it. What rights, and under what conditions, a person shall be allowed to exercise over any portion of this common inheritance, cannot be left undecided. No function of government is less optional than the regulation of these things, or more completely involved in the idea of civilized society.
Again, the legitimacy is conceded of repressing violence or treachery; but under which of these heads are we to place the obligation imposed on people to perform their contracts? Non-performance does not necessarily imply fraud; the person who entered into the contract may have sincerely intended to fulfil itc: and the term fraud, which can scarcely admit of being extended even to the case of voluntary breach of contract when no deception was practised, is certainly not applicable when the omission to perform is a case of negligencec . Is it no part of the duty of governments to enforce contracts? Here the doctrine of non-interference would no doubt be stretched a little, and it would be said, that enforcing contracts is not regulating the affairs of individuals at the pleasure of government, but giving effect to their own expressed desire. Let us acquiesce in this enlargement of the restrictive theory, and take it for what it is worth. But governments do not limit their concern with contracts to a simple enforcement. They take upon themselves to determine what contracts are fit to be enforced. It is not enough that one person, not being either cheated or compelled, makes a promise to another. There are promises by which it is not for the public good that persons should have the power of binding themselves. To say nothing of engagements to do something contrary to law, there are engagements which the law refuses to enforce, for reasons connected with the interest of the promiser, or with the general policy of the state. A contract by which a person sells himself to another as a slave, would be declared void by the tribunals of this and of most other European countries. There are few nations whose laws d enforce a contract for what eise looked upon as prostitution, or any matrimonial engagement of which the conditions fvaryf in any respect from those which the law ghasg thought fit to prescribe. But when once it is admitted that there are any engagements which for reasons of expediency the law ought not to enforce, the same question is necessarily opened with respect to all engagements. Whether, for example, the law should enforce a contract to labour, when the wages are too low or the hours of work too severe: whether it should enforce a contract by which a person binds himself to remain, for more than a very limited period, in the service of a given individual: whether a contract of marriage, entered into for life, should continue to be enforced against the deliberate will of the persons, or of either of the persons, who entered into it. Every question which can possibly arise as to the policy of contracts, and of the relations which they establish among human beings, is a question for the legislator; and one which he cannot escape from considering, and in some way or other deciding.
Again, the prevention and suppression of force and fraud afford appropriate employment for soldiers, policemen, and criminal judges; but there are also civil tribunals. The punishment of wrong is one business of an administration of justice, but hthe decision of disputes is another.h Innumerable disputes arise between persons, without mala fides on either side, through misconception of their legal rights, or from not being agreed about the facts, on the proof of which those rights are legally dependent. It is not for the general interest that the State should appoint persons to clear up these uncertainties and terminate these disputes? It cannot be said to be a case of absolute necessity. People might appoint an arbitrator, and engage to submit to his decision; and they do so where there are no courts of justice, or where the courts are not trusted, or where their delays and expenses, or the irrationality of their rules of evidence, deter people from resorting to them. Still, it is universally thought right that the State should establish civil tribunals; and if their defects often drive people to have recourse to substitutes, even then the power held in reserve of carrying the case before a legally constituted court, gives to the substitutes their principal efficacy.
Not only does the State undertake to decide disputes, it takes precautions beforehand that disputes may not arise. The laws of most countries lay down rules for determining many things, not because it is of much consequence in what way they are determined, but in order that they may be determined somehow, and there may be no question on the subject. The law prescribes forms of words for many kinds of contract, in order that no dispute or misunderstanding may arise about their meaning: it makes provision that if a dispute does arise, evidence shall be procurable for deciding it, by requiring that the document be attested by witnesses and executed with certain formalities. The law preserves authentic evidence of facts to which legal consequences are attached, by keeping a registry of such facts; as of births, deaths, and marriages, of wills and contracts, and of judicial proceedings. In doing these things, it has never been alleged that government oversteps the proper limits of its functions.
Again, however wide a scope we may allow to the doctrine that individuals are the proper guardians of their own interests, and that government owes nothing to them but to save them from being interfered with by other people, the doctrine can never be applicable to any persons but those who are capable of acting in their own behalf. The individual may be an infant, or a lunatic, or fallen into imbecility. The law surely must look after the interests of such persons. It does not necessarily do this through officers of its own. It ioften devolvesi the trust upon some relative or connexion. But in doing so is its duty ended? Can it make over the interests of one person to the control of another, and be excused from supervision, or from holding the person thus trusted, responsible for the discharge of the trust?
There is a multitude of cases in which governments, with general approbation, assume powers and execute functions for which no reason can be assigned except the simple one, that they conduce to general convenience. We may take as an example, the jfunctionj (which is a monopoly too) of coining money. This is assumed for no more recondite purpose than that of saving to individuals the trouble, delay, and expense of weighing and assaying. No one, however, even of those most jealous of state interference, has objected to this as an improper exercise of the powers of government. Prescribing a set of standard weights and measures is another instance. Paving, lighting, and cleansing the streets and thoroughfares, is another; whether done by the general government, or as is more usual, and generally more advisable, by a municipal authority. Making or improving harbours, building lighthouses, making surveys in order to have accurate maps and charts, raising dykes to keep the sea out, and embankments to keep rivers in, are cases in point.
Examples might be indefinitely multiplied without intruding on any disputed ground. But enough has been said to show that the admitted functions of government embrace a much wider field than can easily be included within the ring-fence of any restrictive definition, and that it is hardly possible to find any ground of justification common to them all, except the comprehensive one of general expediency; nor to limit the interference of government by any universal rule, save the simple and vague one, that it should never be admitted but when the case of expediency is strong.
§ 3. [Division of the subject] Some observations, however, may be usefully bestowed on the nature of the considerations on which the question of government interference is most likely to turn, and on the mode of estimating the comparative magnitude of the expediencies involved. This will form the last of the three parts, into which our discussion of the principles and effects of government interference may conveniently be divided. The following will be our division of the subject.
We shall first consider the economical effects arising from the manner in which governments perform their necessary and acknowledged functions.
We shall then pass to certain governmental interferences of what I have termed the optional kind (i.e. overstepping the boundaries of the universally acknowledged functions) which have heretofore taken place, and in some cases still take place, under the influence of false general theories.
It will lastly remain to inquire whether, independently of any false theory, and consistently with a correct view of the laws which regulate human affairs, there be any cases of the optional class in which governmental interference is really advisable, and what are those cases.
The first of these divisions is of an extremely miscellaneous character: since the necessary functions of government, and those which are so manifestly expedient that they have never or very rarely been objected to, are, as already pointed out, too various to be brought under any very simple classification. Those, however, which are of principal importance, which alone it is necessary here to consider, may be reduced to the following general heads.
First, the means adopted by governments to raise the revenue which is the condition of their existence.
Secondly, the nature of the laws which they prescribe on the two great subjects of Property and Contracts.
Thirdly, the excellences or defects of the system of means by which they enforce generally the execution of their laws, namely, their judicature and police.
We commence with the first head, that is, with the theory of Taxation.
aOna the General Principles of Taxation
§ 1. [Four fundamental rules of taxation] The qualities desirable, economically speaking, in a system of taxation, have been embodied by Adam Smith in four maxims or principles, which, having been generally concurred in by subsequent writers, may be said to have become classical, and this chapter cannot be better commenced than by quoting them.*
“1. The subjects of every state ought to contribute to the support of the government, as nearly as possible in proportion to their respective abilities: that is, in proportion to the revenue which they respectively enjoy under the protection of the state. In the observation or neglect of this maxim consists what is called the equality or inequality of taxation.
“2. The tax which each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner of payment, the quantity to be paid, ought all to be clear and plain to the contributor, and to every other person. Where it is otherwise, every person subject to the tax is put more or less in the power of the tax-gatherer, who can either aggravate the tax upon any obnoxious contributor, or extort by the terror of such aggravation, some present or perquisite to himself. The uncertainty of taxation encourages the insolence and favours the corruption of an order of men who are naturally unpopular, even when they are neither insolent nor corrupt. The certainty of what each individual ought to pay is, in taxation, a matter of so great importance, that a very considerable degree of inequality, it appears, I believe, from the experience of all nations, is not near so great an evil, as a very small degree of uncertainty.
“3. Every tax ought to be levied at the time, or in the manner, in which it is most likely to be convenient for the contributor to pay it. A tax upon the rent of land or of houses, payable at the same term at which such rents are usually paid, is levied at bab time when it is most likely to be convenient for the contributor to pay; or when he is most likely to have wherewithal to pay. Taxes upon such consumable goods as are articles of luxury, are all finally paid by the consumer, and generally in a manner that is very convenient to him. He pays them by little and little, as he has occasion to buy the goods. As he is at liberty, too, either to buy or not to buy, as he pleases, it must be his own fault if he ever suffers any considerable inconvenience from such taxes.
“4. Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible over and above what it brings into the public treasury of the state. A tax may either take out or keep out of the pockets of the people a great deal more than it brings into the public treasury, in the four following ways. First, the levying of it may require a great number of officers, whose salaries may eat up the greater part of the produce of the tax, and whose perquisites may impose another additional tax upon the people.” Secondly, it may divert a portion of the labour and capital of the community from a more to a less productive employment. “Thirdly, by the forfeitures and other penalties which those unfortunate individuals incur who attempt unsuccessfully to evade the tax, it may frequently ruin them, and thereby put an end to the benefit which the community might have derived from the employment of their capitals. An injudicious tax offers a great temptation to smuggling. Fourthly, by subjecting the people to the frequent visits and the odious examination of the tax-gatherers, it may expose them to much unnecessary trouble, vexation, and oppression:” to which may be added, that the restrictive regulations to which trades and manufactures are often subjected to prevent evasion of a tax, are not only in themselves troublesome and expensive, but often oppose insuperable obstacles to making cimprovementsc in the dprocessesd .
The last three of these four maxims require little other explanation or illustration than is contained in the passage itself. How far any given tax conforms to, or conflicts with them, is a matter to be considered in the discussion of particular taxes. But the first of the four points, equality of taxation, requires to be more fully examined, being a thing often imperfectly understood, and on which many false notions have become to a certain degree accredited, through the absence of any definite principles of judgment in the popular mind.
§ 2. [Grounds of the principle of Equality of Taxation] For what reason ought equality to be the rule in matters of taxation? For the reason, that it ought to be so in all affairs of government. As a government ought to make no distinction of persons or classes in the strength of their claims on it, whatever sacrifices it requires from them should be made to bear as nearly as possible with the same pressure upon all, which, it must be observed, is the mode by which least sacrifice is occasioned on the whole. If any one bears less than his fair share of the burthen, some other person must suffer more than his share, and the alleviation to the one is not, cæteris paribus, so great a good to him, as the increased pressure upon the other is an evil. Equality of taxation, therefore, as a maxim of politics, means equality of sacrifice. It means apportioning the contribution of each person towards the expenses of government, so that he shall feel neither more nor less inconvenience from his share of the payment than every other person experiences from his. This standard, like other standards of perfection, cannot be completely realized; but the first object in every practical discussion should be to know what perfection is.
There are persons, however, who are not content with the general principles of justice as a basis to ground a rule of finance upon, but must have something, as they think, more specifically appropriate to the subject. What best pleases them is, to regard the taxes paid by each member of the community as an equivalent for value received, in the shape of service to himself; and they prefer to rest the justice of making each contribute in proportion to his means, upon the ground, that he who has twice as much property to be protected, receives, on an accurate calculation, twice as much protection, and ought, on the principles of bargain and sale, to pay twice as much for it. Since, however, the assumption that government exists solely for the protection of property, is not one to be deliberately adhered to; some consistent adherents of the quid pro quo principle go on to observe, that protection being required for person as well as property, and everybody’s person receiving the same amount of protection, a poll-tax of a fixed sum per head is a proper equivalent for this part of the benefits of government, while the remaining part, protection to property, should be paid for in proportion to property. There is in this adjustment a false air of nice adaptation, very acceptable to some minds. But in the first place, it is not admissible that the protection of apersons and that ofa property are the sole purposes of government. The ends of government are as comprehensive as those of the social union. They consist of all the good, and all the immunity from evil, which the existence of government can be made either directly or indirectly to bestow. In the second place, the practice of setting definite values on things essentially indefinite, and making them a ground of practical conclusions, is peculiarly fertile in false views of social questions. It cannot be admitted, that to be protected in the ownership of ten times as much property, is to be ten times as much protected. bNeither can it be truly said that the protection of 1000l. a year costs the state ten times as much as that of 100l. a year, rather than twice as much, or exactly as much. The same judges, soldiers, and sailors who protect the one protect the other, and the larger income does not necessarily, though it may sometimes, require even more policemen.b Whether the labour and expense of the protection, or the feelings of the protected person, or any other definite thing be made the standard, there is no such proportion as the one supposed, nor any other definable proportion. If we wanted to estimate the degrees of benefit which different persons derive from the protection of government, we should have to consider who would suffer most if that protection were withdrawn: to which question if any answer could be made, it must be, that those would suffer most who were weakest in mind or body, either by nature or by position. Indeed, such persons would almost infallibly be slaves. If there were any justice, therefore, in the theory of justice now under consideration, those who are least capable of helping or defending themselves, being those to whom the protection of government is the most indispensable, ought to pay the greatest share of its price: the reverse of the true idea of distributive justice, which consists not in imitating but in redressing the inequalities and wrongs of nature.
Government must be regarded as so pre-eminently a concern of all, that to determine who carec most interested in it is of no real importance. If a person or class of persons receive so small a share of the benefit as makes it necessary to raise the question, there is something else than taxation which is amiss, and the thing to be done is to remedy the defect, dinstead of recognising it and makingd it a ground for demanding less taxes. As, in a case of voluntary subscription for a purpose in which all are interested, all are thought to have done their part fairly when each has contributed according to his means, that is, has made an equal sacrifice for the common object; in like manner should this be the principle of compulsory contributions: and it is superfluous to look for a more ingenious or recondite ground to rest the principle upon.
§ 3. [Should the same percentage be levied on all amounts of income?] Setting out, then, from the maxim that equal sacrifices ought to be demanded from all, we have next to inquire whether this is in fact done, by making each contribute the same percentage on his pecuniary means. Many persons maintain the negative, saying that a tenth part taken from a small income is a heavier burthen than the same fraction deducted from one much larger: and on this is grounded the very popular scheme of what is called a graduated property tax, viz. an income tax in which the percentage rises with the amount of the income.
On the best consideration I am able to give to this question, it appears to me that the portion of truth which the doctrine contains, arises principally from the difference between a tax which can be saved from luxuries, and one which trenches, in ever so small a degree, upon the necessaries of life. To take a thousand a year from the possessor of ten thousand, would not deprive him of anything really conducive either to the support or to the comfort of existence; and if such would be the effect of taking five pounds from one whose income is fifty, the sacrifice required from the last is not only greater than, but entirely incommensurable with, that imposed upon the first. The mode of adjusting these inequalities of pressure, which seems to be the most equitable, is that recommended by Bentham, of leaving a certain minimum of income, sufficient to provide the necessaries of life, untaxed. Suppose 50l. a year to be asufficient to provide the number of persons ordinarily supported from a single income,a with the requisites of life and health, and with protection against habitual bodily suffering, but not with any bindulgenceb . This then should be made the minimum, and incomes exceeding it should pay taxes not upon their whole amount, but upon the surplus. If the tax be ten per cent, an income of 60l. should be considered as a net income of 10l., and charged with 1l. a year, while an income of 1000l. should be charged as one of 950l. Each would then pay a fixed proportion, not of his whole means, but of his superfluities.* An income not exceeding 50l. should not be taxed at all, either directly or by taxes on necessaries; for as by supposition this is the smallest income which clabour ought to be able to commandc , the government ought not to be a party to making it smaller. This arrangement however would constitute a reason, in addition to others which might be stated, for maintaining d taxes on articles of luxury consumed by the poor. The immunity extended to the income required for necessaries, should depend on its being actually expended for that purpose; and the poor who, not having more than enough for necessaries, divert any part of it to indulgences, should like other people contribute their quota out of those indulgences to the expenses of the state.
The exemption in favour of the smaller incomes should not, I think, be stretched further than to the amount of income needful for life, health, and immunity from bodily pain. eIf 50l. a year is sufficient (which may be doubted) for these purposes, ane income of 100l. a year would, as it seems to me, obtain all the relief it is entitled to, compared with one of 1000l., by being taxed only on 50l. of its amount. It may be said, indeed, that to take 100l. from 1000l. (even giving back five pounds) is a heavier impost than 1000l. taken from 10,000l. (giving back the same five pounds). But this doctrine seems to me too disputable altogether, and even if true at all, not true to a sufficient extent, to be made the foundation of any rule of taxation. fWhether the person with 10,000l. a year cares less for 1000l. than the person with only 1000l. a year cares for 100l., and if so, how much less, does not appear to me capable of being decided with the degree of certainty on which a legislator or a financier ought to act.f
Some indeed contend that gtheg rule of hproportionalh taxation bears harder upon the moderate than upon the large incomes, because the same proportional payment has more tendency in the former case than in the latter, to reduce the payer to a lower grade of social rank. The fact appears to me more than questionable. But even admitting it, I object to its being considered incumbent on government to shape its course by such considerations, or to recognise the notion that social importance is or can be determined by amount of expenditure. Government ought to set an example of rating all things at their true value, and riches, therefore, at the worth, for comfort or pleasure, of the things which they will buy: and ought not to sanction the vulgarity of prizing them for the pitiful vanity of being known to possess them, or the i paltry shame of being suspected to be without them, the presiding motives of three-fourths of the expenditure of the middle classes. The sacrifices of real comfort or indulgence which government requires, it is bound to apportion among all persons with as much equality as possible; but their sacrifices of the imaginary dignity dependent on expense, it may spare itself the trouble of estimating.
Both in England and on the Continent a graduated property tax (l’impôt progressif) has been advocated, on the avowed ground that the state should use the instrument of taxation as a means of mitigating the inequalities of wealth. I am as desirous as any one, that means should be taken to diminish those inequalities, but not so as to jrelieve the prodigal at the expense of the prudentj . To tax the larger incomes at a higher percentage than the smaller, is to lay a tax on industry and economy; to impose a penalty on people for having worked harder and saved more than their neighbours. It is knot the fortunes which are earned, but those which are unearned, that it is for the public good to place under limitationk . A just and wise legislation would l abstain from mholding out motives for dissipating rather than saving the earnings ofm honest exertion. Its impartiality between competitors would consist in endeavouring that they should all start fair, and not nin hanging a weight upon the swift to diminish the distance between them and the slown . Many, indeed, fail with greater efforts than those with which others succeed, not from difference of merits, but difference of opportunities; obut if all were done which it would be in the power of a good government to do, by instruction and by legislation, topdiminishp this inequality of opportunities, the differenceso of fortune arising from people’s own earnings could not justly give umbrage. With respect to the large fortunes acquired by gift or inheritance, the power of bequeathing q is one of those privileges of property which are fit subjects for regulation on grounds of general expediency; and I have already suggested,* as ra possibler mode of restraining the accumulation of large fortunes in the hands of those who have not earned them by exertion, a limitation of the amount which any one person should be permitted to acquire by gift, bequest, or inheritance. Apart from this, and from the proposal of Bentham (also discussed in a former chapter) that collateral inheritance ab intestato should cease, and the property escheat to the state, I conceive that inheritances and legacies, exceeding a certain amount, are highly proper subjects for taxation: and that the revenue from them should be as great as it can be made without giving rise to evasions, by donation inter vivos or concealment of property, such as it would be impossible adequately to check. The principle of graduation (as it is called,) that is, of levying a larger percentage on a larger sum, though its application to general taxation would be sin my opinion objectionable,tseems to met both just and expedients as applied to legacy and inheritance duties.
The objection to a graduated property tax applies in an aggravated degree to the proposition of an exclusive tax on what is called “realized property,” that is, property not forming a part of any capital engaged in business, or uratheru in business vunder the superintendence of the ownerv : as land, the public funds, money lent on mortgage, and shares (I presume) in joint stock companies. Except the proposal of applying a sponge to the national debt, no such palpable violation of common honesty has found sufficient support in this country, during the present generation, to be regarded as within the domain of discussion. It has not the palliation of a graduated property tax, that of laying the burthen on those best able to bear it; for “realized property” includes wthe far larger portion of thew provision made for those who are unable to work, and consists, in great part, of extremely small fractions. I can hardly conceive a more shameless pretension, than that the major part of the property of the country, that of merchants, manufacturers, farmers, and shopkeepers, should be exempted from its share of taxation; that these classes should only begin to pay their proportion after retiring from business, and if they never retire should be excused from it altogether. But even this does not give an adequate idea of the injustice of the proposition. The burthen thus exclusively thrown on the owners of the smaller portion of the wealth of the community, would not even be a burthen on that class of persons in perpetual succession, but would fall exclusively on those who happened to compose it when the tax was laid on. As land and those particular securities would xthenceforthx yield a smaller net income, relatively to the general interest of capital and to the profits of trade; the balance would rectify itself by a permanent depreciation of those kinds of property. Future buyers would acquire land and securities at a reduction of price, equivalent to the peculiar tax, which tax they would, therefore, escape from paying; while the original possessors would remain burthened with it even after parting with the property, since they would have sold their land or securities at a loss of value equivalent to the fee-simple of the tax. Its imposition would thus be tantamount to the confiscation for public uses of a percentage of their property, equal to the percentage laid on their income by the tax. That such a proposition should find any favour, is a striking instance of the want of conscience in matters of taxation, resulting from the absence of any fixed principles in the public mind, and of any indication of a sense of justice on the subject in the general conduct of ygovernmentsy . Should the scheme ever enlist a large party in its support, the fact would indicate a laxity of pecuniary integrity in national affairs, scarcely inferior to American repudiation.
§ 4. [Should the same percentage be levied on perpetual and on terminable incomes?] Whether the profits of trade may not rightfully be taxed at a a lower rate than incomes derived from interest or rent, is part of the more comprehensive question, so often mooted on the occasion of the present income tax, whether life incomes should be subjected to the same rate of taxation as perpetual incomes: whether salaries, for example, or annuities, or the gains of professions, should pay the same percentage as the income from inheritable property.
The existing tax treats all kinds of incomes exactly alike, taking bitsbcsevenpence (now fourpence)c in the pound, as well from the person whose income dies with him, as from the dlandholderd , stockholder, or mortgagee, who can transmit his fortune undiminished to his descendants. This is a visible injustice: yet it does not arithmetically violate the rule that taxation ought to be in proportion to means. When it is said that a temporary income ought to be taxed less than a permanent one, the reply is irresistible, that it is taxed less; for the income which lasts only ten years pays the tax only ten years, while that which lasts for ever pays for ever. eOn this point some financial reformers are guilty of a great fallacy. They contend that incomes ought to be assessed to the income tax not in proportion to their annual amount, but to their capitalized value: that, for example, if the value of a perpetual annuity of 100l. is 3000l., and a life annuity of the same amount, being worth only half the number of years’ purchase, could only be sold for 1500l., the perpetual income should pay twice as much per cent income tax as the terminable income: if the one pays 10l. a year the other should pay only 5l. But in this argument there is the obvious oversight, that it values the incomes by one standard and the payments by another; it capitalizes the incomes, but forgets to capitalize the payments. An annuity worth 3000l. ought, it is alleged, to be taxed twice as highly as one which is only worth 1500l., and no assertion can be more unquestionable; but it is forgotten that the income worth 3000l. pays to the supposed income tax 10l. a year in perpetuity, which is equivalent, by supposition, to 300l., while the terminable income pays the same 10l. only during the life of its owner, which on the same calculation is a value of 150l.f, and could actually be bought for that sum.f Already, therefore, the income which is only half as valuable, pays only half as much to the tax; and if in addition to this its annual quota were reduced from 10l. to 5l., it would pay, not half, but a fourth part only of the payment demanded from the perpetual income. gTo make it just that the one income should pay only half as much per annum as the other, it would be necessary that it should pay that half for the same period, that is, in perpetuity.g
hThe rule of payment which this school of financial reformers contend for, would be very proper if the tax were only to be levied once, to meet some national emergency. On the principle of requiring from all payers an equal sacrifice, every person who had anything belonging to him, reversioners included, would be called on for a payment proportioned to the present value of his property. I wonder it does not occur to the reformers in question, that precisely because this principle of assessment would be just in the case of a payment made once for all, it cannot possibly be just for a permanent tax. When each pays only once, one person pays no oftener than another; and the proportion which would be just in that case, cannot also be just if one person has to make the payment only once, and the other several times. This, however, is the type of the case which actually occurs. The permanent incomes pay the tax as much oftener than the temporary ones, as a perpetuity exceeds the certain or uncertain length of time which forms the duration of the income for life or years.h
All attempts to establish a claim in favour of terminable incomes on numerical grounds—to make out, in short, that a proportional tax is not a proportional tax—are manifestly absurd. The claim does not rest on grounds of arithmetic, but of human iwants and feelingsi . jIt is not because the temporary annuitant has smaller means, but because he has greaterknecessitiesk , that he ought to be assessed at a lower rate.j
Ine spite of the nominal equality of income, A, an annuitant of 1000l. a year, cannot so well afford to pay 100l. out of it, as B who derives the same annual sum from heritable property; A having usually a demand on his income which B has not, namely, to provide by saving for children or others; to which, in the case of salaries or professional gains, must generally be added a provision for his own later years; while B may expend his whole income without injury to his old age, and still have it all to bestow on others after his death. If A, in order to meet these exigencies, must lay by 300l. of his income, to take 100l. from him as income tax is lto takel 100l. from 700l., since it must be retrenched from that part only of his means which he can afford to spend on his own consumption. Were he to throw it rateably on what he spends and on what he saves, abating 70l. from his consumption and 30l. from his annual saving, then indeed his immediate sacrifice would be mproportionatelym the same as B’s: but then his children or his old age would be worse provided for in consequence of the taxn. The capital sum which would be accumulated for them would be one-tenth less, and on the reduced income afforded by this reduced capital, they would be a second time charged with income taxo; whilepB’sp heirs would only be charged onceo.n
The principle, therefore, of equality of taxation, interpreted in its only just sense, equality of sacrifice, requires that a person who has no means of providing for old age, or for those in whom he is interested, except by saving from q income, should have the tax remitted on all that part of his income which is really and bonâ fide applied to that purpose.r
sIf, indeed, reliance could be placed on the conscience of the contributors, or sufficient security taken for the correctness of their statements by collateral precautions, the proper mode of assessing an income tax would be to tax only the part of income devoted to expenditure, exempting that which is saved. For when saved and invested (and all savings, speaking generally, are invested) it thenceforth pays income tax on the interest or profit which it brings, notwithstanding that it has already been taxed on the principal. Unless, therefore, savings are exempted from income tax, the contributors are twice taxed on what they save, and only once on what they spend. A person who spends all he receives, pays 7d. in the pound, or say three per cent, to the tax, and no more; but if he saves part of the year’s income and buys stock, then in addition to the three per cent which he has paid on the principal, and which diminishes the interest in the same ratio, he pays three per cent annually on the interest itself, which is equivalent to an immediate payment of a second three per cent on the principal. So that while unproductive expenditure pays only three per cent, savings pay six per cent: or more correctly, three per cent on the whole, and another three per cent on the remaining ninety-seven. The difference thus created to the disadvantage of prudence and economy, is not only impolitic but unjust. To tax the sum invested, and afterwards tax also the proceeds of the investment, is to tax the same portion of the contributor’s means twice over. The principal and the interest cannot both together form part of his resources; they are the same portion twice counted: if he has the interest, it is because he abstains from using the principal; if hetspendst the principal, he does not receive the interest. Yet because he can do either of the two, he is taxed as if he could do both, and could have the benefit of the saving and that of the spending, uconcurrentlyu with one another.
vIt has been urged as an objection to exempting savings from taxation, that the law ought not to disturb, by artificial interference, the natural competition between the motives for saving and those for spending. But we have seen that the law disturbs this natural competition when it taxes savings, not when it spares them; for as the savings pay at any rate the full tax as soon as they are invested, their exemption from payment in the earlier stage is necessary to prevent them from paying twice, while money spent in unproductive consumption pays only once. It has been further objected, that since the rich have the greatest means of saving, any privilege given to savings is an advantage bestowed on the rich at the expense of the poor. I answer, that it is bestowed on them only in proportion as they abdicate the personal use of their riches; in proportion as they divert their income from the supply of their own wants, to a productive investment, through which, instead of being consumed by themselves, it is distributed in wages among the poor. If this be favouring the rich, I should like to have it pointed out, what mode of assessing taxation can deserve the name of favouring the poor.v
No income tax is really just, from which savings are not exempted; and no income tax ought to be voted without that provision, if the form of the returns, and the nature of the evidence required, could be so arranged as to prevent the exemption from being taken fraudulent advantage of, by saving with one hand and getting into debt with the other, or by spending in the following year what had been passed tax-free as saving in the year preceding. If this difficulty could be surmounted, the difficulties and complexities arising from the comparative claims of temporary and permanent incomes, would disappear; for, since temporary incomes have no just claim to lighter taxation than permanent incomes, except in so far as their possessors are more called upon to save, the exemption of what they do save would fully satisfy the claim. But if no plan can be devised for the exemption of actual savings, sufficiently free from liability to fraud, it is necessary, as the next thing in point of justice, to take into account in assessing the tax, what the different classes of contributors ought to save. And there would probably be no other mode of doing this thans the rough expedient of two different rates of assessment. There would be great difficulty in taking into account differences of duration between one terminable income and another; and in the most frequent case, that of incomes dependent on life, differences of age and health would constitute such extreme diversity as it would be impossible to take proper cognizance of. It would probably be necessary to be content with one uniform rate for all incomes of inheritance, and another uniform rate for all those which necessarily terminate with the life of the individual. In fixing the proportion between the two rates, there must inevitably be something arbitrary; perhaps a deduction of one-fourth in favour of life-incomes would be as little objectionable as any which could be made, it being thus assumed that one-fourth of a life-income is, on the average of all ages and states of health, a suitable proportion to be laid by as a provision for successors and for old age.*
Of the net profits of persons in business, wa part, as before observedw , may be considered as interest on capital, and of a perpetual character, and the xremaining partx as remuneration for the skill and labour of superintendencey. The surplus beyond interest dependsy on the life of the individual, and even on his continuance in businessz, and is entitled to the full amount of exemption allowed to terminable incomes. It has also, I conceive, a just claim to a further amount of exemption in consideration of its precariousness. An income which some not unusual vicissitude may reduce to nothing, or even convert into a loss, is not the same thing to the feelings of the possessor as a permanent income of 1000l. a year, even though on an average of years it may yield 1000l. a year. If life-incomes were assessed at three-fourths of their amount, the profits of business, after deducting interest on capital, should not only be assessed at three-fourths, but should pay, on that assessment, a lower rate. Or perhaps the claims of justice in this respect might be sufficiently met by allowing the deduction of a fourth on the entire income, interest included.z
These are the chief cases, of ordinary occurrence, in which any difficulty arises in interpreting the maxim of equality of taxation. The proper sense to be put upon it, as we have seen in the preceding example, is, that people should be taxed, not in proportion to what they have, but to what they can afford to spend. It is no objection to this principle that we cannot apply it consistently to all cases. A person with a life-income and precarious health, or who has many persons depending on his exertions, must, if he wishes to provide for them after his death, be more rigidly economical than one who has a life-income of equal amount with a strong constitution, and few claims upon him; and aif it be conceded thata taxation cannot accommodate itself to these distinctions, it is argued that there is no use in attending to any distinctions, where the absolute amount of income is the same. But the bdifficultyb of doing perfect justice is no reason against doing as much as we can. Though it may be a hardship to an annuitant whose life is only worth five years’ purchase, to be allowed no greater abatement than is granted to one whose life is worth twenty, it is better for him even so, than if neither of them were allowed any abatement at all.
§ 5. [The increase of the rent of land from natural causes is a fit subject of peculiar taxation] Before leaving the subject of Equality of Taxation, I must remark that there are cases in which exceptions may be made to it, consistently with that equal justice which is the groundwork of the rule. Suppose that there is a kind of income which constantly tends to increase, without any exertion or sacrifice on the part of the owners: those owners constituting a class in the community, whom the natural course of things progressively enriches, consistently with complete passiveness on their own part. In such a case it would be no violation of the principles on which private property is grounded, if the state should appropriate this increase of wealth, or part of it, as it arises. This would not properly be taking anything from anybody; it would merely be applying an accession of wealth, created by circumstances, to the benefit of society, instead of allowing it to become an unearned appendage to the riches of a particular class.
Now this is actually the case with rent. The ordinary progress of a society which increases in wealth, is at all times tending to augment the incomes of landlords; to give them both a greater amount and a greater proportion of the wealth of the community, independently of any trouble or outlay incurred by themselves. They grow richer, as it were in their sleep, without working, risking, or economizing. What claim have they, on the general aprinciplea of social justice, to this accession of riches? In what would they have been wronged if society had, from the beginning, reserved btheb right of taxing the spontaneous increase of rent, to the highest amount required by financial exigencies? I admit that it would be unjust to come upon each individual estate, and lay hold of the increase which might be found to have taken place in its rental; because there would be no cmeansc of distinguishing in individual cases, between an increase owing solely to the general circumstances of society, and one which was the effect of skill and expenditure on the part of the proprietor. The only admissible mode of proceeding would be by a general measure. The first step should be a valuation of all the land in the country. The present value of all land should be exempt from the tax; but after an interval had elapsed, during which society had increased in population and capital, a rough estimate might be made of the spontaneous increase which had accrued to rent since the valuation was made. Of this the average price of produce would be some criterion: if that had risen, it would be certain that rent had increased, and (as already shown) even in a greater ratio than the rise of price. On this and other data, an approximate estimate might be made, how much value had been added to the land of the country by natural causes; and in laying on a general land-tax, which for fear of miscalculation should be considerably within the amount thus indicated, there would be an assurance of not touching any increase of income which might be the result of capital expended or industry exerted by the proprietor.
But though there could be no question as to the justice of taxing the increase of rent, if society had avowedly reserved the right, has not society waived that right by not exercising it? In England, for example, have not all who bought land for the last century or more, given value not only for the existing income, but for the prospects of increase, under an implied assurance of being only taxed in the same proportion with other incomes? This objection, in so far as valid, has a different degree of validity in different countries; depending on the degree of desuetude into which society has allowed a right to fall, which, as no one can doubt, it once fully possessed. In most countries of Europe, the right to take by taxation, as exigency might require, an indefinite portion of the rent of land, has never been allowed to slumber. In several parts of the Continent, the land-tax forms a large proportion of the public revenues, and has always been confessedly liable to be raised or lowered without reference to other taxes. In these countries no one can pretend to have become the owner of land on the faith of never being called upon to pay an increased land-tax. In England the land-tax has not varied since the early part of the last century. The last act of the legislature in relation to its amount, was to diminish it; and though the subsequent increase in the rental of the country has been immense, not only from agriculture, but from the growth of towns and the increase of buildings, the ascendency of landholders in the legislature has prevented any tax from being imposed, as it so justly might, upon the very large portion of this increase which was unearned, and, as it were, accidental. For the expectations thus raised, it appears to me that an amply sufficient allowance is made, if the whole increase of income which has accrued during this long period from a mere natural law, without exertion or sacrifice, is held sacred from any peculiar taxation. From the present date, or any subsequent time at which the legislature may think fit to assert the principle, I see no objection to declaring that the future increment of rent should be liable to special taxation; in doing which dalld injustice to the landlords would be obviated, if the present market-price of their land were secured to them; since that includes the present value of all future expectations. With reference to such a tax, perhaps a safer criterion than either a rise of rents or a rise of the price of corn, would be a general rise in the price of land. It would be easy to keep the tax within the amount which would reduce the market value of land below the original valuation: and up to that point, whatever the amount of the tax might be, no injustice would be done to the proprietors.
§ 6. [A land tax, in some cases, is not taxation, but a rent-charge in favour of the public] But whatever may be thought of the legitimacy of making the State a sharer in all future increase of rent from natural causes, the existing land-tax (which in this country unfortunately is very small) ought not to be regarded as a tax, but as a rent-charge in favour of the public; a portion of the rent, reserved from athe beginninga by the State, which has never belonged to or formed part of the income of the landlords, and should not therefore be counted to them as part of their taxation, so as to exempt them from their fair share of every other tax. As well might the tithe be regarded as a tax on the landlords: as well, in Bengal, where the State, bthoughb entitled to the whole rent of the land, gave away one-tenth of it to individuals, retaining the other nine-tenths, might those nine-tenths be considered as an unequal and unjust tax on the grantees of the tenth. That a person owns part of the rent, does not make the rest of it his just right, injuriously withheld from him. The landlords originally held their estates subject to feudal burthens, for which the present land-tax is an exceedingly small equivalent, and for their relief from which they should have been required to pay a much higher price. All who have bought land since the tax existed have bought it subject to the tax. There is not the smallest pretence for looking upon it as a payment exacted from the existing race of landlords.
These observations are applicable to a land-tax, only in so far as it is a peculiar tax, and not when it is merely a mode of levying from the landlords the equivalent of what is taken from other classes. In France, for example, there are peculiar taxes on other kinds of property and income (the mobilier and the patente), and supposing the land-tax to be not more than equivalent to these, there would be no ground for contending that the state had reserved to itself a rent-charge on the land. But wherever and in so far as income derived from land is prescriptively subject to a deduction for public purposes, beyond the rate of taxation levied on other incomes, the surplus is not properly taxation, but a share of the property in the soil, reserved by the state. In this country there are no peculiar taxes on other classes, corresponding to, or intended to countervail, the land-tax. The whole of it, therefore, is not taxation, but a rent-charge, and is as if the state had retained, not a portion of the rent, but a portion of the land. It is no more a burthen on the landlord, than the share of one joint tenant is a burthen on the other. The landlords are entitled to no compensation for it, nor have they any claim to its being allowed for, as part of their taxes. Its continuance on the existing footing is no infringement of the principle of Equal Taxation.*
We shall hereafter consider, in treating of Indirect Taxation, how far, and with what modifications, the rule of equality is applicable to that department.
§ 7. [Taxes falling on capital are not necessarily objectionable] In addition to the preceding rules, another general rule of taxation is sometimes laid down, namely, that it should fall on income, and not on capital. That taxation should not encroach upon the amount of the national capital, is indeed of the greatest importance; but this encroachment, when it occurs, is not so much a consequence of any particular mode of taxation, as of its excessive amount. Over-taxation, carried to a sufficient extent, is quite capable of ruining the most industrious community, especially when it is in any degree arbitrary, so that the payer is never certain how much or how little he shall be allowed to keep; or when it is so laid on as to render industry and economy a bad calculation. But if these errors be avoided, and the amount of taxation be not greater than it is at present even in the most heavily taxed country of Europe, there is no danger lest it should deprive the country of a portion of its capital.
To provide that taxation shall fall entirely on income, and not at all on capital, is beyond the power of any system of fiscal arrangements. There is no tax which is not partly paid from what would otherwise have been saved; no tax, the amount of which, if remitted, would be wholly employed in increased expenditure, and no part whatever laid by as an addition to capital. All taxes, therefore, are in some sense partly paid out of capital; and in a poor country it is impossible to impose any tax which will not impede the increase of the national wealth. But in a country where capital abounds, and the spirit of accumulation is strong, this effect of taxation is scarcely felt. Capital having reached the stage in which, were it not for a perpetual succession of improvements in production, any further increase would soon be stopped—and having so strong a tendency even to outrun those improvements, that profits are only kept above the minimum by emigration of capital, or by a periodical sweep called a commercial crisis; to take from capital by taxation what emigration would remove, or a commercial crisis destroy, is only to do what either of those causes would have done, namely, to make a clear space for further saving.
I cannot, therefore, attach any importance, in a wealthy country, to the objection made against taxes on legacies and inheritances, that they are taxes on capital. It is perfectly true that they are so. As Ricardo observes, if 100l. are taken from any one in a tax on houses or on wine, he will probably save it, or a part of it, by living in a cheaper house, consuming less wine, or retrenching from some other of his expenses; but if the same sum be taken from him because he has received a legacy of 1000l., he considers the legacy as only 900l., and feels no more inducement than at any other time (probably feels rather less inducement) to economize in his expenditure. The tax, therefore, is wholly paid out of capital: and there are countries in which this would be a serious objection. But in the first place, the argument cannot apply to any country which has a national debt, and devotes any portion of revenue to paying it off; since the produce of the tax, thus applied, still remains capital, and is merely transferred from the tax-payer to the fundholder. But the objection is never applicable in a country which increases rapidly in wealth. The amount which would be derived, even from a very high legacy duty, in each year, is but a small fraction of the annual increase of capital in such a country; and its abstraction would but make room for saving to an equivalent amount: while the effect of not taking it, is to prevent that amount of saving, or cause the savings, when made, to be sent abroad for investment. A country which, like England, accumulates capital not only for itself, but for half the world, may be said to defray the whole of its public expenses from its overflowings; and its wealth is probably at this moment as great as if it had no taxes at all. What its taxes really do is, to substract from its means, not of production, but of enjoyment; since whatever any one pays in taxes, he could, if it were not taken for that purpose, employ in indulging his ease, or in gratifying some want or taste which at present remains unsatisfied.
Of Direct Taxes
§ 1. [Direct taxes either on income or on expenditure] Taxes are either direct or indirect. A direct tax is one which is demanded from the very persons who, it is intended or desired, should pay it. Indirect taxes are those which are demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another: such as the excise or customs. The producer or importer of a commodity is called upon to pay a tax on it, not with the intention to levy a peculiar contribution upon him, but to tax through him the consumers of the commodity, from whom it is supposed that he will recover the amount by means of an advance in price.
Direct taxes are either on income, or on expenditure. Most taxes on expenditure are indirect, but some are direct, being imposed not on the producer or seller of an article, but immediately on the consumer. A house-tax, for example, is a direct tax on expenditure, if levied, as it usually is, on the occupier of the house. If levied on the builder or owner, it would be an indirect tax. aAa window-tax is a direct tax on expenditure; so are the taxes on horses and carriages, and the rest of what are called the assessed taxes.
The sources of income are rent, profits, and wages. This includes every bsortb of income, except gift or plunder. Taxes may be laid on any one of the three kinds of income, or an uniform tax on all of them. We will consider these in their order.
§ 2. [Taxes on rent] A tax on rent falls wholly on the landlord. There are no means by which he can shift the burthen upon any one else. It does not affect the value or price of agricultural produce, for this is determined by the cost of production in the most unfavourable circumstances, and in those circumstances, as we have so often demonstrated, no rent is paid. A tax on rent, therefore, has no effect, other than its obvious one. It merely takes so much from the landlord, and transfers it to the state.
This, however, is, in strict exactness, only true of the rent which is the result either of natural causes, or of improvements made by tenants. When the landlord makes improvements which increase the productive power of his land, he is remunerated for them by an extra payment from the tenant; and this payment, which to the landlord is properly a profit on capital, is blended and confounded with rent; which indeed it really is, to the tenant, and in respect of the economical laws which determine its amount. A tax on rent, if extending to this portion of it, would discourage landlords from making improvements: but it does not follow that it would raise the price of agricultural produce. The same improvements might be made with the tenant’s capital, or even with the landlord’s if lent by him to the tenant; provided he is willing to give the tenant so long a lease as will enable him to indemnify himself before it expires. But whatever hinders improvements from being made in the manner in which people prefer to make them, will often prevent them from being made at all: and on this account a tax on rent would be inexpedient, unless some means could be devised of excluding from its operation that portion of the nominal rent which may be regarded as landlord’s profit. This argument, however, is not needed for the condemnation of such a tax. A peculiar tax on the income of any class, not balanced by taxes on other classes, is a violation of justice, and amounts to a partial confiscation. I have already shown grounds for excepting from this censure a tax which, sparing existing rents, should content itself with appropriating a portion of any future increase arising from the mere action of natural causes. But even this could not be justly done, without offering as an alternative the market price of the land. In the case of a tax on rent which is not peculiar, but accompanied by an equivalent tax on other incomes, the objection grounded on its reaching the profit arising from improvements ais less applicablea : since, profits being taxed as well as rent, the profit which assumes the form of rent bis liable to its share in common with other profits; but since profits altogether ought, for reasons formerly stated, to be taxed somewhat lower than rent properly so called, the objection is only diminished, not removedb .
§ 3. [Taxes on profits] A tax on profits, like a tax on rent, must, at least in its immediate operation, fall wholly on the payer. All profits being alike affected, no relief can be obtained by a change of employment. If a tax were laid on the profits of any one branch of productive employment, the tax would be virtually an increase of the cost of production, and the value and price of the article would rise accordingly; by which the tax would be thrown upon the consumers of the commodity, and would not affect profits. But a general and equal tax on all profits would not affect general prices, and would fall, at least in the first instance, on capitalists alone.
There is, however, an ulterior effect, which, in a rich and prosperous country, requires to be taken into account. When the capital accumulated is so great and the rate of annual accumulation so rapid, that the country is only kept from attaining the stationary state by the emigration of capital, or by continual improvements in production; any circumstance which virtually lowers the rate of profit cannot be without a decided influence on these phenomena. It may operate in different ways. The curtailment of profit, and the consequent increased difficulty aina making a fortune or obtaining a subsistence by the employment of capital, may act as a stimulus to inventions, and to the use of them when made. If improvements in production are much accelerated, and if these improvements cheapen, directly or indirectly, any of the things habitually consumed by the labourer, profits may rise, and rise sufficiently to make up for all that is taken from them by the tax. In that case the tax will have been realized without loss to any one, the produce of the country being increased by an equal, or what would in that case be a far greater amount. The tax, however, must even in this case be considered as paid from profits, because the receivers of profits are those who would be benefited if it were taken off.
But though the artificial abstraction of a portion of profits would have a real tendency to accelerate improvements in production, no considerable improvements might actually result, or only of such a kind as not to raise general profits at all, or not to raise them so much as the tax had diminished them. If so, the rate of profit would be brought closer to that practical minimum, to which it is constantly approaching: and this diminished return to capital would either give a decided check to further accumulation, or would cause a greater proportion than before of the annual increase to be sent abroad, or wasted in unprofitable speculations. At its first imposition the tax falls wholly on profits: but the amount of increase of capital, which the tax prevents, would, if it had been allowed to continue, have tended to reduce profits to the same level; and at every period of ten or twenty years there will be found less difference between profits as they are, and profits as they would in that case have been: until at last there is no difference, and the tax is thrown either upon the labourer or upon the landlord. The real effect of a tax on profits is to make the country possess at any given period, a smaller capital and a smaller aggregate production, and to make the stationary state be attained earlier, and with a smaller sum of national wealth. It is possible that a tax on profits might even diminish the existing capital of the country. If the rate of profit is already at the practical minimum, that is, at the point at which all that portion of the annual increment which would tend to reduce profits is carried off either by exportation or by bspeculationb ; then if a tax is imposed which reduces profits still lower, the same causes which previously carried off the increase would probably carry off a portion of the existing capital. A tax on profits is thus, in a state of capital and accumulation like that in England, extremely detrimental to the national wealth. And this effect is not confined to the case of a peculiar, and therefore intrinsically unjust, tax on profits. The mere fact that profits have to bear their share of a heavy general taxation, tends, in the same manner as a peculiar tax, to drive capital abroad, to stimulate imprudent speculations by diminishing safe gains, to discourage further accumulation, and to accelerate the attainment of the stationary state. This is thought to have been the principal cause of the decline of Holland, or rather of her having ceased to make progress.
Even in countries which do not accumulate so fast as to be always within a short interval of the stationary state, it seems impossible that, if capital is accumulating at all, its accumulation should not be in some degree retarded by the abstraction of a portion of its profit; and unless the effect in stimulating improvements be a full counter-balance, it is inevitable that a part of the burthen will be thrown off the capitalist, upon the labourer or the landlord. One or other of these is always the loser by a diminished rate of accumulation. If population continues to increase as before, the labourer suffers: if not, cultivation is checked in its advance, and the landlords lose the accession of rent which would have accrued to them. The only ccountriesc in which a tax on profits seems likely to be permanently a burthen on capitalists exclusively, are those in which capital is stationary, because there is no new accumulation. In such countries the tax might not prevent the old capital from being kept up through habit, or from unwillingness to submit to impoverishment, and so the capitalist might continue to bear the whole of the tax. It is seen from these considerations that the effects of a tax on profits are much more complex, more various, and in some points more uncertain, than writers on the subject have commonly supposed.
§ 4. [Taxes on wages] We anow turna to Taxes on Wages. The incidence of these is very different, according as the wages taxed are those of ordinary unskilled labour, or are the remuneration of such skilled or privileged employments, whether manual or intellectual, as are taken out of the sphere of competition by a natural or b conferred monopoly.
I have already remarked, that in the present low state of popular education, all the higher grades of mental or educated labour are at a monopoly price; exceeding the wages of common workmen in a degree very far beyond that which is due to the expense, trouble, and loss of time required in qualifying for the employment. Any tax levied on these gains, which still leaves them above (or not below) their just proportion, falls on those who pay it; they have no means of relieving themselves at the expense of any other class. The same thing is true of ordinary wages, in cases like that of the United States, or of a new colony, where, capital increasing as rapidly as population can increase, wages are kept up by the increase of capital, and not by the adherence of the labourers to a fixed standard of comforts. In such a case some deterioration of their condition, whether by a tax or otherwise, might possibly take place without checking the increase of population. The tax would in that case fall on the labourers themselves, and would reduce them prematurely to that lower state to which, on the same supposition with regard to their habits, they would in any case have been reduced ultimately, by the inevitable diminution in the rate of increase of capital, through the occupation of all the fertile land.
Some will object that, even in this case, a tax on wages cannot be detrimental to the labourers, since the money raised by it, being expended in the country, comes back to the labourers again through the demand for labour. The fallacy, however, of this doctrine has been so completely exhibited in the First Book,* that I need do little more than refer to that exposition. It was there shown that funds expended unproductively have no tendency to raise or keep up wages, unless when expended in the direct purchase of labour. If the government took a tax of a shilling a week from every labourer, and laid it all out in hiring labourers for military service, public works, or the like, it would, no doubt, indemnify the labourers as a class for all that the tax took from them. That would really be “spending the money among the people.” But if it expended the whole in buying goods, or in adding to the salaries of employés who bought goods with it, this would not increase the demand for labour, or tend to raise wages. Withoutc, however,c reverting to dgeneral principlesd , we may rely on an obvious reductio ad absurdum. If to take money from the labourers and spend it in commodities is giving it back to the labourers, then, to take money from other classes, and spend it in the same manner, must be giving it to the labourers; consequently, the more a government takes in taxes, the greater will be the demand for labour, and the more opulent the condition of the labourers. A proposition the absurdity of which no one can fail to see.
In the condition of most communities, wages are regulated by the habitual standard of living to which the labourers adhere, and on less than which they will not multiply. Where there exists such a standard, a tax on wages will indeed for a time be borne by the labourers themselves; but unless this temporary depression has the effect of lowering the standard itself, the increase of population will receive a check, which will raise wages, and restore the labourers to their previous condition. On whom, in this case, will the tax fall? According to Adam Smith, on the community generally, in their character of consumers; since the rise of wages, he thought, would raise general prices. We have seen, however, that general prices depend on other causes, and are never raised by any circumstance which affects all kinds of productive employment in the same manner and degree. A rise of wages occasioned by a tax, must, like any other increase of the cost of labour, be defrayed from profits. To attempt to tax day-labourers, in an old country, is merely to impose an extra tax upon all employers of common labour; unless the tax has the much worse effect of permanently lowering the standard of comfortable subsistence in the minds of the poorest class.
We find in the preceding considerations an additional argument for the opinion already expressed, that direct taxations should stop short of the class of incomes which do not exceed what is necessary for healthful existence. eThesee very small incomes are fmostlyf derived from manual labour; and, as we now see, any tax imposed on these, either permanently degrades the habits of the labouring class, or falls on profits, and burthens capitalists with an indirect tax, in addition to their share of the direct taxes; which is doubly objectionable, both as a violation of the fundamental rule of equality, and for the reasons which, as already shown, render a peculiar tax on profits detrimental to the public wealth, and consequently to the means which society possesses of paying any taxes whatever.
§ 5. [An Income Tax] We now pass, from taxes on the separate kinds of income, to a tax attempted to be assessed fairly upon all kinds; in other words, an Income Tax. The discussion of the conditions necessary for making this tax consistent with justice, has been anticipated in the last chapter. We shall suppose, therefore, that athesea conditions are complied with. They are, first, that incomes below a certain amount should be altogether untaxed. This minimum should not be higher than the amount which suffices for the necessaries of bthe existing populationb . The exemption from the present income tax, of all incomes under c100l.c a year, dand the lower percentageeformerlye levied on those between 100l. and 150l., ared only defensible on the ground that falmost all the indirect taxesf press more heavily on incomes between 50l. and 150l. than on any others whatever. The second condition is, that incomes above the limit should be taxed only in proportion to the surplus by which they exceed the limit. Thirdly, that gall sums saved from income and invested, should be exempt from the tax: or if this be found impracticable, that life incomes, and incomes from business and professions,g should be less heavily taxed than inheritable incomes, in a degree as nearly as possible equivalent to the increased need of economy arising from their terminable characterh: allowance being also made, in the case of variable incomes, for their precariousness.h
An income-tax, fairly assessed on these principles, would be, in point of justice, the least exceptionable of all taxes. The objection to it, iin the present low state of public moralityi , is the impossibility of ascertaining the real incomes of the contributors. The supposed hardship of compelling people to disclose the amount of their incomes, ought not, in my opinion, to count for much. One of the social evils of this country is the practice, amounting to a custom, of maintaining, or attempting to maintain, the appearance to the world of a larger income than is possessed; and it would be far better for the jinterestj of those who yield to this weakness, if the extent of their means were universally and exactly known, and the temptation removed to expending more than they can afford, or stinting real wants in order to make a false show externally. At the same time, the reason of the case, even on this point, is not so exclusively on one side of the argument as is sometimes supposed. So long as the vulgar of any country are in the debased state of mind which this national habit presupposes—so long as their respect (if such a word can be applied to it) is proportioned to what they suppose to be each person’s pecuniary means—it may be doubted whether anything which would remove all kuncertaintyk as to that point, would not considerably increase the presumption and arrogance of the vulgar rich, and their insolence towards those above them in mind and character, but below them in lfortunel .
Notwithstanding, too, what is called the inquisitorial nature of the tax, no amount of inquisitorial power which would be tolerated by a people the most disposed to submit to it, could enable the revenue officers to assess the tax from actual knowledge of the circumstances of contributors. Rents, salaries, annuities, and all fixed incomes, can be exactly ascertained. But the variable gains of professions, and still more the profits of business, which the person interested cannot always himself exactly ascertain, can still less be estimated with any approach to fairness by a tax-collector. The main reliance must be placed, and always has been placed, on the returns made by the person himself. No production of accounts is of much avail, except against the more flagrant cases of falsehood; and even against these the check is very imperfect, for if fraud is intended, false accounts can generally be framed which it will baffle any means of inquiry possessed by the revenue officers to detect: the easy resource of omitting entries on the credit side being often sufficient without the aid of fictitious debts or disbursements. The tax, therefore, on whatever principles of equality it may be imposed, is in practice unequal in one of the worst ways, falling heaviest on the most conscientious. The unscrupulous succeed in evading a great proportion of what they should pay; even persons of integrity in their ordinary transactions are tempted to palter with their consciences, at least to the extent of deciding in their own favour all points on which the smallest doubt or discussion could arise: while the strictly veracious mmay bem made to pay more than the state intended, by the powers of arbitrary assessment necessarily intrusted to the Commissioners, as the last defence against the tax-payer’s power of concealment.
It is to be feared, therefore, that the fairness which belongs to the principle of an income tax, ncannotn be made to attach to it in practice: and that this tax, while apparently the most just of all modes of raising a revenue, is in effect more unjust than many others which are primâ facie more objectionable. This consideration would lead us to concur in the opinion which, until of late, has usually prevailed—that direct taxes on income should be reserved as an extraordinary resource for great national emergencies, in which the necessity of a large additional revenue overrules all o objections.
The difficulties of a fair income tax have p elicited a proposition for a direct tax of so much per cent, not on income but on expenditure; the aggregate amount of each person’s expenditure being ascertained, as the amount of income now is, from statements furnished by the contributors themselves. The author of this suggestion, Mr. Revans, in a clever pamphlet on the subject,* contends that the returns which persons would furnish of their expenditure would be more trustworthy than those which they now make of their income, inasmuch as expenditure is in its own nature more public than income, and false representations of it more easily detected. He cannot, I think, have sufficiently considered, how few of the items in the annual expenditure of most families can be judged of with any approximation to correctness from the external signs. The only security would still be the veracity of individuals, and there is no reason for supposing that their statements would be more trustworthy on the subject of their expenses than q that of their revenues; especially as, the expenditure of most persons being composed of many more items than their income, there would be more scope for concealment and suppression in the detail of expenses than even of receipts.
The taxes on expenditure at present in force, either in this or in other countries, fall only on particular kinds of expenditure, and differ no otherwise from taxes on commodities than in being paid directly by the person who consumes or uses the article, instead of being advanced by the producer or seller, and reimbursed in the price. The taxes on horses and carriages, on dogs, on servants, are rallr of this nature. They evidently fall on the persons from whom they are levied—those who use the commodity taxed. A tax of a similar description, and more important, is a house-tax; which must be considered at somewhat greater length.
§ 6. [A House Tax] The rent of a house consists of two parts, the ground-rent, and what Adam Smith calls the building-rent. The first is determined by the ordinary principles of rent. It is the remuneration given for the use of the portion of land occupied by the house and its appurtenances; and varies from a mere equivalent for the rent which the ground would afford in agriculture, to the monopoly rents paid for advantageous situations in populous thoroughfares. The rent of the house itself, as distinguished from the ground, is the equivalent given for the labour and capital expended on the building. The fact of its being received in quarterly or half-yearly payments, makes no difference in the principles by which it is regulated. It comprises the ordinary profit on the builder’s capital, and an annuity, sufficient at the current rate of interest, after paying for all repairs chargeable on the proprietor, to replace the original capital by the time the house is worn out, or by the expiration of the usual term of a building lease.
A tax of so much per cent on the gross rent, falls on both athosea 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 indeedb, of the class for which the demand had decreased,b would cease to be erected, except for special reasons; but in the meantime 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 ctransferred toc 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.
dThe case is partlyd 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. eIt will not however fall wholly on the landlord, unless with the tax on ground-rent there ise combined an equivalent tax on agricultural rentf . The glowestg 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 hcultivationh . If, therefore, a tax were laid on ground-rents without being also laid on agricultural rents, it would, unless of i trifling amount, reduce the return from the lowest ground-rents below the ordinary return from land, and would jcheckj 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 kthe ordinary causes of destructionk , 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 l the market value of its peculiar advantages. mIf, 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 10l. per acre, and the highest 1000l., a tax of 1l. per acre on ground-rents would ultimately raise the former to 11l., and the latter consequently to 1001l., since the difference of value between the two situations would be exactly what it was before: the annual pound, 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 1l., the dearest would pay 100l., of which only the 1l. could be thrown upon the occupier, since the rent would still be only raised to 1001l. Consequently, 99l. of the 100l. levied from the expensive site, would fall on the ground-landlord. 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 favourite 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 occupierm, if justly proportioned to the value of the house, nitn 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. A house-tax is a nearer approach to a fair income tax, than a direct assessment on income can easily be; having the great advantage, that it makes spontaneously all the allowances which it is so difficult to make, and so impracticable to make exactly, in assessing an income tax: for if what a person pays in house-rent is a test of anything, it is a test not of what he possesses, but of what he thinks he can afford to spend. oThe equality of this tax can only be seriously questioned on two grounds.o 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. But pas misersp do not now hoard their treasure, but invest it in qproductive employments, it not onlyq adds to the national wealth, and consequently to the general means of paying taxes, rbut the payment claimable from itself is only transferred from the principal sum to the income afterwards derived from it, which pays taxes as soon as it comes to be expendedr . 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.*
sA larges portion of the taxation of tthist country is u raised by a house-taxv. Thev parochial taxation of the towns entirely, and of the rural districts partially, wconsistsw of an assessment on house-rent. The window-tax, which xwasx also a house-tax, but of a bad kind, operating as a tax on light, and a cause of deformity in buildingy, was exchanged in 1851 for a house-tax properly so called, but on a much lower scale than that which existed previously to 1834. It is to be lamented that the new tax retainsy the unjust principle on which the old house-tax was assessed, and which contributed quite as much as the selfishness of the middle classes to produce the outcry against the taxz . The public were justly scandalized on learning that residences like Chatsworth or Belvoir were only rated on an imaginary rent of perhaps 200l. a year, under the pretext that owing to the great expense of keeping them up, they could not be let for more. Probably, indeed, they could not be let even for that, and if the argument were a fair one, they ought not to have been taxed at all. But a house-tax is not intended as a tax on incomes derived from houses, but on expenditure incurred for them. The thing which it is wished to ascertain is what a house costs to the person who lives in it, not what it would bring in if let to some one else. When the occupier is not the owner, aand does not hold on a repairing lease,a the rent he pays is the measure of what bthe houseb costs him: cbutc when he is the owner, some other measure must be sought. 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 dperiodically correctedd 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, as is now usually the case with chambers.
Of Taxes on Commodities
§ 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. Taxes imposed directly on the consumers of particular commodities, such as a house-tax, or the tax in this country on horses and carriages, might be called taxes on commodities, but are not; 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 acommunitya 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 burthen; 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. M‘Culloch 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 capitals 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, bif absolutely the same, willb form a greater proportion of the annual returns. To derive from a capital of 1000l. a profit of 100l., the one producer may have to sell produce to the value of 1100l., the other only to the value of 500l. If on these two branches of industry a tax be imposed of five per cent ad valorem, the last will be charged only with 25l., the first with 55l.; leaving to the one 75l. profit, to the other only 45l. To equalize, therefore, their expectation of profit, the one commodity must rise in price, or the other must fall, or both: commodities made chiefly by immediate labour 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. A part of the capital of the country, in short, is not employed in production, but in advances to the state, repaid in the price of goods; and the consumers must give an indemnity to the sellers, equal to the profit which they could have made on the same capital if really employed in production.* 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, amay enablea 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. bThe higher price necessitatedb 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 labourer) 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 farther. 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 labouring classes; temporarily indeed it can scarcely fail to do so. If it diminishes their consumption of the produce of the earth, or amakes them resorta 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 bsettlesb 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 labourer’s requirements, but that wages, on the contrary, through an action on population, rise, in a shorter or longer period, so as to compensate the labourers 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 labouring 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 labourers. 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’ 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 cproductivenessc 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 dwed 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 will yield a rent of 90-60, or 30 bushels.
That producing 80 bushels will yield a rent of 80-60, or 20 bushels.
That producing 70 bushels will yield 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:—
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 ethee 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 faf 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 grise sufficientlyg 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 labouring classes.
§ 4. [How the peculiar effects of taxes on necessaries are 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, as was first pointed out, I believe, by Mr. Senior. It is, as we have seen, an almost infallible consequence of any reduction of profits, to retard the rate of accumulation. 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, previous to the imposition of a tithe, that the effect of the tithe reduces it to the practical minimum, the tithe will put a stop to all further accumulation, or cause it to take place out of the country; and the only effect which the tithe will then have had on the consumer, is to make him pay earlier the price which he would have had to pay somewhat later—part of which, indeed, in the gradual progress of wealth and population, he would have almost immediately begun to pay. After a lapse of time which would have admitted of a rise of one-tenth athrougha 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 burthen 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 two-fold 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 bnot be so much asb a tenth higher than what, if there had been no tax, it would by that time have cbecomec . 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.
Mr. Senior illustrates dthisd view of the subject by likening the effects of tithes, or other taxes on agricultural produce to those of natural sterility of soil. If the land of a country ewithout access to foreign supplies,e were suddenly smitten with a permanent deterioration of quality, to an extent which would make a tenth more labour necessary to raise the existing produce, the price of corn would undoubtedly rise one-tenth. But it cannot hence be inferred that if the soil of the country had from the beginning been one-tenth worse than it is, corn would at present have been one-tenth dearer than we find it. It is far more probable, that the smaller return to labour and capital, ever since the first settlement of the country, would have caused in each successive generation a less rapid increase than has taken place: that the country would now have contained less capital, and maintained a smaller population, so that notwithstanding the inferiority of the soil, the price of corn would not have been higher, nor profits lower, than at present; rent alone would certainly have been lower. We may suppose two islands, which, being alike in extent, in natural fertility, and industrial advancement, have up to a certain time been equal in population and capital, and have had equal rentals, and the same price of corn. Let us imagine a tithe imposed in one of these islands, but not in the other. There will be immediately a difference in the price of corn, and therefore probably in profits. While profits are not tending downwards in either country, that is, while improvements in the production of necessaries fully keep pace with the increase of population, this difference of prices and profits between the islands may continue. But if, in the untithed island, capital increases, and population along with it, more than enough to counterbalance any improvements which take place, the price of corn will gradually rise, profits fwillf fall, and rent will increase; while in the tithed island capital and population will either not increase (beyond what is balanced by the improvements), or if they do, will increase in a less degree; so that rent and the price of corn will either not rise at all, or rise more slowly. Rent, therefore, will soon be higher in the untithed than in the tithed island, and profits not so much higher, nor corn so much cheaper, as they were on the first imposition of the tithe. These effects will be progressive. At the end of every ten years there will be a greater difference between the rentals and between the aggregate wealth and population of the two islands, and a less difference in profits and in the price of corn.
At what point will these last differences entirely cease, and the temporary effect of taxes on agricultural produce, in raising the price, have entirely given place to gtheg ultimate effect, that of limiting the total produce of the country? Though the untithed island is always verging towards the point at which the price of food would overtake that in the tithed island, its progress towards that point naturally slackens as it draws nearer to attaining it; since—the difference between the two islands in the rapidity of accumulation depending upon the difference in the rates of profit—in proportion as these approximate, the movement which draws them closer together, abates of its force. The one may not actually overtake the other, until both islands reach the minimum of profits: up to that point, the tithed island may continue more or less ahead of the untithed island in the price of corn: considerably ahead if it is far from the minimum, and is therefore accumulating rapidly; very little ahead if it is near the minimum, and accumulating slowly.
But whatever is true of the tithed and untithed islands in our hypothetical case, is true of any country having a tithe, compared with the same country if it had never had a tithe.
In England the great emigration of capital, and the almost periodical occurrence of commercial crises through the speculations occasioned by the habitually low rate of profit, are indications that profit has attained the practical, though not the ultimate minimum, and that all the savings which take place (beyond what improvements, tending to the cheapening of necessaries, make room for) are either sent abroad for investment, or periodically swept away. There can therefore, I think, be little doubt that if England had never had a tithe, or any tax on agricultural produce, the price of corn would have been by this time as high, and the rate of profits as low, as at present. Independently of the more rapid accumulation which would have taken place if profits had not been prematurely lowered by these imposts; the mere saving of a part of the capital which has been wasted in unsuccessful speculations, and the keeping at home a part of that which has been sent abroad, would have been quite sufficient to produce the effect. I think, therefore, with Mr. Senior, that the tithe, even before its commutation, had ceased to be a cause of high prices or low profits, and had become a mere deducation from rent; its other effects being, that it caused the country to have no greater capital, no larger production, and no more numerous population than if it had been one-tenth less fertile than it is; or let us rather say one-twentieth (considering how great a portion of the land of Great Britain was tithe-free).
But though tithes and other taxes on agricultural produce, when of long standing, heitherh do not raise the price of food iandi 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 labourer’s requirements, it lowers the cost of labour, 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 jisj cut off from that margin by kak 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.
The effects which thus result from abolishing tithe, result equally from what has been done by the arrangements under the l Commutation Act for converting it into a rent-charge. When the tax, instead of being levied on the whole produce of the soil, is levied only from the portions which pay rent, and does not touch any fresh extension of cultivation, the tax no longer forms any part of the cost of production of the portion of the produce which regulates the price of all the rest. The land or capital which pays no rent, can now send its produce to market one-tenth cheaper. The commutation of tithe ought therefore to have produced a considerable fall in the average price of corn. If it had not come so gradually into operation, and if the price of corn had not during the same period been under the influence of several other causes of change, the effect would probably have been markedly conspicuous. As it is, there can be no doubt that this circumstance has had its share in the fall which has taken place in the cost of production and in the price of home-grown produce; though the effects of the great agricultural improvements which have been simultaneously advancing, mand of the free admission of agricultural produce from foreign countries,m have masked those of the other cause. This fall of price would not in itself have any tendency injurious to the landlord, since corn-rents are increased in the same ratio in which the price of corn is diminished. But neither does it in any way tend to increase his income. The rent-charge, therefore, which is substituted for tithe, is a dead loss to him nat the expiration of existing leasesn : and the commutation of tithe was not a mere alteration in the mode in which the landlord bore an existing burthen, but the imposition of a new one; relief being afforded to the consumer at the expense of the landlord, who, however, begins immediately to receive progressive indemnification at the consumer’s expense, by the impulse given to accumulation and population.
§ 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 anot interfered with by government, they ultimatelya 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 labour; it causes so much of the labour of the community to be wasted, and the capital employed in supporting and remunerating btheb labour to be expended as uselessly, as if it were spent in hiring men to dig holes and fill them up again. This waste of labour 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 tax-payer 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 cmost other taxesc ; 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 labour of the country actually thrown away, in producing by the labour of (say) three hundred men, what could be obtained by the other process with the labour of two hundred.
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 labour 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 labour and capital is expended, without any extra result. The labour 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 dusually subjectd . 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 favourable, 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 5¼ millions sterling. Of this the odd 250,000l. goes to compensate the growers of the last million of quarters for the labour and capital wasted under the compulsion of the law. The remaining five millions 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. But I am by no means of opinion that in the long run they keep up either prices or rents in the degree which these considerations might lead us to suppose. What we have said respecting the effect of tithes and other taxes on agricultural produce, applies in a great degree to corn laws: they anticipate artificially a rise of price and of rent, which would at all events have taken place through the increase of population and of production. 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. There is every reason to expect that under the virtually free importation of agricultural produce, eat laste extorted from the ruling powers of this country, the price of food, if population goes on increasingf , will gradually but steadily rise; though this effect may for a time be postponed by the strong current which in this country has set in (and the impulse gis extendingg itself to other countries) towards the himprovementh of agricultural science, and its increased application to practice.
What we have said of duties on importation generally, is equally applicable to discriminating duties which favour 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 iformerly imposedi by our navigation laws on goods imported in other than British shipping. Whatever else may be alleged in favour 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 labour 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 influence 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 ait isa sold. All taxes on international trade tend, therefore, to produce a disturbance and a re-adjustment of what we have termed the Equation of International Demand. This consideration leads to some rather curious consequences, which have been pointed out in the separate essay on International Commerce, already several times referred to in this treatise.
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 favourable 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 suppositious case employed in the Essay, of a trade between Germany and England in broadcloth and linen, “suppose that England taxes her export of cloth, the tax not being supposed high enough to induce Germany to produce cloth for herself. The price at which cloth can be sold in Germany 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, England will gain, at the expense of Germany, not only the whole amount of the duty, but more; for, the money value of her exports to Germany being increased, while her imports remain the same, money will flow into England from Germany. The price of cloth will rise in England, and consequently in Germany; but the price of linen will fall in Germany, and consequently in England. We shall export less cloth, and import more linen, till the equilibrium is restored. It thus appears (what is at first sight somewhat remarkable) that by taxing her exports, England 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. Germany, on the other hand, would suffer doubly: she would have to pay for her cloth a price increased not only by the duty, but by the influx of money into England, while the same change in the distribution of the circulating medium would leave her less money to purchase it with.
“This, however, is only one of three possible cases. If, after the imposition of the duty, Germany requires so diminished a quantity of cloth, that its total value is exactly the same as before, the balance of trade bwouldb be undisturbed; England will gain the duty, Germany will lose it, and nothing more. If, again, the imposition of the duty occasions such a falling off in the demand that Germany requires a less pecuniary value than before, our exports will no longer pay for our imports; money must pass from England into Germany; and Germany’s share of the advantage of the trade will be increased. By the change in the distribution of money, cloth will fall in England; and therefore it will, of course, fall in Germany. Thus Germany will not pay the whole of the tax. From the same cause, linen will rise in Germany, and consequently in England. When this alteration of prices has so adjusted the demand, that the cloth and the linen again pay for one another, the result is that Germany 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 linen, 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 linen 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 Germany for cloth 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 linen in England, 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 cloth exported will no longer pay for the linen imported. Money will therefore flow out of England into Germany. One effect is to raise the price of linen in Germany, and consequently in England. 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 linen consumed. The balance, therefore, can only be restored by the other effect, which is going on at the same time, namely, the fall of cloth in the English and consequently in the German market. Even when cloth 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 German consumers have now not only cloth 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 cloth. The price of cloth, therefore, must perhaps fall, to restore the equilibrium, more than the whole amount of the duty; Germany may be enabled to import cloth at a lower price when it is taxed, than when it was untaxed: and this gain she will acquire at the expense of the English consumers of linen, 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 cloth.”
It is almost unnecessary to remark that cloth and linen are here merely representatives of exports and imports in general; and that the effect which a tax on exports might have in increasing the cost of imports, would affect the imports from all countries, and not peculiarly the articles which might be imported from the particular country to which the taxed exports were sent.
“Such are the extremely various effects which may result to ourselves and to our customers from the imposition of taxes on our exports; and the determining circumstances are of a nature so imperfectly ascertainable, that it must be almost impossible to decide with any certainty, even after the tax has been imposed, whether we have been gainers by it or losers.” 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.* “In any case, whatever we gain is lost by somebody else, and there is the expense of the collection besides: if international morality, therefore, were rightly understood and acted upon, such taxes, as being contrary to the universal weal, would not exist.”
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 cloth which we export, suppose that we tax the linen 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 cloth and in linen, 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 linen we did consume.
“The equilibrium of trade would be disturbed if the imposition of the tax diminished, in the slightest degree, the quantity of linen consumed. For, as the tax is levied at our own custom-house, the German exporter only receives the same price as formerly, though the English 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 England to Germany: this sum will no longer be an equivalent for the sum due from Germany to England for cloth, the balance therefore must be paid in money. Prices will fall in Germany and rise in England; linen will fall in the German market; cloth will rise in the English. The Germans will pay a higher price for cloth, and will have smaller money incomes to buy it with; while the English will obtain linen 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 labour 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 cfromc the restricted supply being the utmost which the buyers would consent to give rather than go without it; if the treasury interprets a part of this, the price cannot 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: those which have the effect of encouraging some particular branch of domestic industry, and those which have not. The former are purely mischievous, both to the country imposing them, and to those with whom it trades. They prevent a saving of labour 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 labour 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 England, in the case already supposed, sought to obtain for herself more than her natural share of the advantage of the trade with Germany, by imposing a duty upon linen, Germany would only have to impose a duty upon cloth, sufficient to diminish the demand for that article about as much as the demand for linen had been diminished in England 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 cannot be expected to renounce the power of taxing foreigners, unless foreigners will in return practise towards 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 revenues 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 dearer market.”[*]
Of Some Other Taxes
§ 1. [Taxes on contracts] Besides direct taxes on income, and taxes on consumption, the financial systems of most countries comprise a variety of miscellaneous imposts, not strictly included in either class. The modern European systems retain many such taxes, though in much less number and variety than those semi-barbarous governments which European influence has not yet reached. In some of these, scarcely any incident of life has escaped being made an excuse for some fiscal exaction; hardly any act, not belonging to daily routine, can be performed by any one, without obtaining leave from some agent of government, which is only granted in consideration of a payment: especially when the act requires the aid or the peculiar guarantee of a public authority. In the present treatise we may confine our attention to such taxes as lately existed, or still exist, in countries usually classed as civilized.
In almost all nations a considerable revenue is drawn from taxes on contracts. These are imposed in various forms. One expedient is that of taxing the legal instrument which serves as evidence of the contract, and which is commonly the only evidence legally admissible. In England, scarcely any contract is binding unless executed on stamped paper, which has paid a tax to government; and auntil very lately, when the contract related to property the tax was proportionally much heavier on the smaller than on the larger transactions; which is still true of some of those taxesa . There are also stamp-duties on the legal instruments which are evidence of the fulfilment of contracts; such as acknowledgments of receipt, and deeds of release. Taxes on contracts are not always levied by means of stamps. The duty on sales by auction, abrogated by Sir Robert Peel, was an instance in point. The taxes on transfers of landed property, in France, are another: in England bthereb are stamp-duties. In some countries, contracts of many kinds are not valid unless registered, and their registration is made an occasion for a tax.
Of taxes on contracts, the most important are those on the transfer of property; chiefly on purchases and sales. Taxes on the sale of consumable commodities are simply taxes on those commodities. If they affect only some particular commodities, they raise the prices of those commodities, and are paid by the consumer. If the attempt were made to tax all purchases and sales, which, however absurd, was for centuries the law of Spain, the tax, if it could be enforced, would be equivalent to a tax on all commodities, and would not affect prices: if levied from the sellers, it would be a tax on profits, if from the buyers, a tax on consumption; and neither class could throw the burthen upon the other. If confined to some one mode of sale, as for example by auction, it discourages recourse to that mode, and if of any material amount, prevents it from being adopted at all, unless in a case of emergency; in which case as the seller is under a necessity to sell, but the buyer under no necessity to buy, the tax falls on the seller; and this was the strongest of the objections to the auction duty: it almost always fell on a necessitous person, and in the c crisis of his necessities.
Taxes on the purchase and sale of land are, in most countries, liable to the same objection. Landed property in old countries is seldom parted with, except from reduced circumstances, or some urgent need: the seller, therefore, must take what he can get, while the buyer, whose object is an investment, makes his calculations on the interest which he can obtain for his money in other ways, and will not buy if he is charged with a government tax on the transaction.* It has indeed been objected, that this argument would not apply if all modes of permanent investment, such as the purchase of government securities, shares in joint-stock companies, mortgages, and the like, were subject to the same tax. But even then, if paid by the buyer, it would be equivalent to a tax on interest: if sufficiently heavy to be of any importance, it would disturb the established relation between interest and profit; and the disturbance would redress itself by a rise in the rate of interest, and a fall of the price of land and of all securities. It appears to me, therefore, that the seller is the person by whom such taxes, unless under peculiar circumstances, will dgenerallyd be borne.
All taxes must be condemned which throw obstacles in the way of the sale of land, or other instruments of production. Such sales tend naturally to render the property more productive. The seller, whether moved by necessity or choice, is probably some one who is either without the means, or without the capacity, to make the most advantageous use of the property for productive purposes; while the buyer, on the other hand, is at any rate not needy, and is efrequentlye both inclined and able to improve the property, since, as it is worth more to such a person than to any other, he is likely to offer the highest price for it. All taxes, therefore, and all difficulties and expenses, annexed to such contracts, are decidedly detrimental; especially in the case of land, the source of subsistence, and the original foundation of all wealth, on the improvement of which, therefore, so much depends. Too great facilities cannot be given to enable land to pass into the hands, and assume the modes of aggregation or division, most conducive to its productiveness. If landed properties are too large, alienation should be free, in order that they may be subdivided; if too small, in order that they may be united. All taxes on the transfer of landed property should be abolished; but, as the landlords have no claim to be relieved from any reservation which the state has hitherto made in its own favour from the amount of their rent, an annual impost equivalent to the average produce of these taxes should be distributed over the land generally, in the form of a land-tax.f
Some of the taxes on contracts are very pernicious, imposing a virtual penalty upon transactions which it ought to be the policy of the legislator to encourage. Of this sort is the stamp-duty on leases, which in a country of large properties are an essential condition of good agriculture; and the gtaxesg on insurances, a direct discouragement to prudence and forethought.h
§ 2. [Taxes on communication] Nearly allied to the taxes on contracts are those on communication. The principal of these is the postage tax; to which may be added ataxesa on advertisements, and b on newspapers, which are taxes on the communication of information.
The common mode of levying a tax on the conveyance of letters, is by making the government the sole authorized carrier of them, and demanding a monopoly price. When this price is so moderate as it is in this country under the uniform penny postage, scarcely if at all exceeding what would be charged under the freest competition by any private company, it can hardly be considered as taxation, but rather as the profits of a business; whatever excess there is above the ordinary profits of stock being a fair result of the saving of expense, caused by having only one establishment and one set of arrangements for the whole country, instead of many competing ones. The business, too, being one which both can and ought to be conducted on fixed rules, is one of the c few businesses which it is not unsuitable to a government to conduct. The post office, therefore, is at present one of the best of the sources from which this country derives its revenue. But a postage much exceeding what would be paid for the same service in a system of freedom, is not a desirable tax. Its chief weight falls on letters of business, and increases the expense of mercantile relations between distant places. It is like an attempt to raise a large revenue by heavy tolls: it obstructs all operations by which goods are conveyed from place to place, and discourages the production of commodities in one place for consumption in another; which is not only in itself one of the greatest sources of economy of labour, but is a necessary condition of almost all improvements in production, and one of the strongest stimulants to industryd, and promoters of civilizationd .
eThee tax on advertisements fwasf not free from the same objection, since in whatever degree advertisements are useful to business, by facilitating the coming together of the dealer or producer and the consumer, in that same degree, if the tax be high enough to be a serious discouragement to advertising, it prolongs the period during which goods remain unsold, and capital locked up in idleness.g
A tax on newspapers is objectionable, not so much where it does fall as where it does not, that is, where it prevents newspapers from being used. To the generality of those who h buy them, newspapers are a luxury which they can as well afford to pay for as any other indulgence, and which is as unexceptionable a source of revenue. But to that large part of the community who have been taught to read, but have received little other intellectual education, newspapers are the source of nearly all the general information which they possess, and of nearly all their acquaintance with the ideas and topics current among mankind; and an interest is more easily excited in newspapers, than in books or other more recondite sources of instruction. Newspapers icontribute so little, in a direct way toi the origination of useful ideas, that many persons undervalue the importance of their office in disseminating jthem. They correct many prejudices and superstitions, and keep up aj habit of discussion, and interest in public concerns, the absence of which is a great cause of the stagnation of mind usually found in the lower and middle, if not in all, ranks, of those countries where newspapers of an important or interesting character do not exist. There ought to be no taxes k(as in this country there now are not)k which render this great diffuser of linformationl , of mental excitement, and mental exercise, less accessible to that portion of the public which most needs to be carried m into a region of ideas and interests beyond its own limited horizon.
§ 3. [Law Taxes] In the enumeration of bad taxes, a conspicuous place must be assigned to law taxes; which extract a revenue for the state from the various operations involved in an application to the tribunals. Like all needless expenses attached to law proceedings, they are a tax on redress, and therefore a premium on injury. Although such taxes have been abolished in this country as a general source of revenue, they still exist in the form of fees of court, for defraying the expense of the courts of justice; under the idea, apparently, that those may fairly be required to bear the expenses of the administration of justice, who reap the benefit of it. The fallacy of this doctrine was powerfully exposed by Bentham. As he remarked, those who are under the necessity of going to law, are those who benefit least, not most, by the law and its administration. To them the protection which the law affords has not been complete, since they have been obliged to resort to a court of justice to ascertain their rights, or maintain those rights against infringement: while the remainder of the public have enjoyed the immunity from injury conferred by the law and the tribunals, without the inconvenience of an appeal to them.
§ 4. [Modes of taxation for local purposes] Besides the general taxes of the State, there are in all or most countries local taxes, to defray any expenses of a public nature which it is thought best to place under the control or management of a local authority. Some of these expenses are incurred for purposes in which the particular locality is solely or chiefly interested; as the paving, cleansing, and lighting of the streets; or the making and repairing of roads and bridges, which may be important to people from any part of the country, but only in so far as they, or goods ain which they have an interesta , pass along the roads or over the bridges. In other cases again, the expenses are of a kind as nationally important as any others, but are defrayed locally because supposed more likely to be well administered by local bodies; as, in England, the relief of the poor, and the support of gaols, and in some other countries, of schools. To decide for what public objects local superintendence is best suited, and what are those which should be kept immediately under the central government, or under a mixed system of local management and central superintendence, is a question not of political economy, but of administration. It is an important principle, however, that taxes imposed by a local authority, being less amenable to publicity and discussion than the acts of the government, should always be special—laid on for some definite service, and not exceeding the expense actually incurred in rendering the service. Thus limited, it is desirable, whenever practicable, that the burthen should fall on those to whom the service is rendered; that the expense, for instance, of roads and bridges, should be defrayed by a toll on passengers and goods conveyed by them, thus dividing the cost between those who use them for pleasure or convenience, and the consumers of the goods which they enable to be brought to and from the market at a diminished expense. When, however, the tolls have repaid with interest the whole of the expenditure, the road or bridge should be thrown open free of toll, that it may be used also by those to whom, unless open gratuitously, it would be valueless; provision being made for repairs either from the funds of the state, or by a rate levied on the localities which reap the principal benefit.
In England, almost all local taxes are direct, (the coal duty of the City of London, and a few similar imposts, being the chief exceptions,) though the greatest part of the taxation for general purposes is indirect. On the contrary, in France, Austria, and other countries where direct taxation is much more largely employed by the state, the local expenses of towns are principally defrayed by taxes levied on commodities when entering them. These indirect taxes are much more objectionable in towns than on the frontier, because the things which the country supplies to the towns are chiefly the necessaries of life and the materials of manufacture, while, of what a country imports from foreign countries, the greater part usually consists of luxuries. An octroi cannot produce a large revenue, without pressing severely upon the labouring classes of the towns; unless their wages rise proportionally, in which case the tax falls in a great measure on the consumers of town produce, whether residing in town or country, since capital will not remain in the towns if its profits fall bbelowb their ordinary proportion as compared with the rural districts.
Comparison between Direct and Indirect Taxation
§ 1. [Arguments for and against direct taxation] Are direct or indirect taxes the most eligible? This question, at all times interesting, has of late excited a considerable amount of discussion. In England there is a popular feeling, of old standing, in favour of indirect, or it should rather be said in opposition to direct, taxation. The feeling is not grounded on the merits of the case, and is of a a puerile kind. An Englishman bdislikesb , not so much the payment, as the act of paying. He dislikes seeing the face of the tax-collector, and being subjected to his peremptory demand. Perhaps, too, the money which he is required to pay directly out of his pocket is the only taxation which he is quite sure that he pays at all. That a tax of cone shillingc per pound on tea, or of dtwod shillings per bottle on wine, raises the price of each pound of tea and bottle of wine which he consumes, by that and more than that amount, cannot indeed be denied; it is the fact, and is intended to be so, and he himself, at times, is perfectly aware of it; but it makes hardly any impression on his practical feelings and associations, serving to illustrate the distinction between what is merely known to be true and what is felt to be so. The eunpopularitye of direct taxation, contrasted with the easy manner in which the public consent to let themselves be fleeced in the prices of commodities, has generated in many friends of improvement a directly opposite mode of thinking to the foregoing. They contend that the very reason which makes direct taxation disagreeable, makes it preferable. Under it, every one knows how much he really pays; and if he votes for a war, or any other expensive national luxury, he does so with his eyes open to what it costs him. If all taxes were direct, taxation would be much more fperceivedf than at present; and there would be a security which now there is not, for economy in the public expenditure.
Although this argument is not without forceg , its weight is likely to be constantly diminishing. The real incidence of indirect taxation is every day more generally understood and more familiarly recognised: and whatever else may be said of the h changes which are taking place in the tendencies of the human mind, it can scarcely, I think, be denied, that things are more and more estimated according to their calculated value, and less according to their non-essential accompaniments. The mere distinction i between paying money directly to the tax-collector, and contributing the same sum through the intervention of the tea-dealer or the wine-merchant, jno longer makesj the whole difference between dislike or opposition, and passive acquiescence. But further, while kany suchk infirmity of the popular mind subsists, the argument grounded on it tells partly on the other side of the question. If our present revenue of labout seventyl millions were all raised by direct taxes, an mextremem dissatisfaction would certainly arise at having to pay so much; but while men’s minds are so little guided by reason, as such a change of feeling from so irrelevant a cause would imply, n so great an aversion to taxation omight not be an unqualifiedo good. Of the pseventyp millions in question, nearly thirty are pledged, under the most binding obligations, to those whose qpropertyq has been borrowed and spent by the state: and while this debt remains unredeemed, a greatly increased impatience of taxation would involve no little danger of a breach of faith, similar to that which, in the defaulting states of America, has been produced, and in some of them still continues, from the same cause. That part, indeed, of the public expenditure, which is devoted to the maintenance of civil and military establishments, r(that is, all except the interest of the national debt,) affordss, in many of its details,s ample scope for t retrenchment. But while u much of the revenue is wasted under the mere pretence of public service, so much of the most important business of government is left undone, that whatever can be rescued from useless expenditure is urgently required for useful.r Whether the object be v education; wa more efficient and accessible administration of justicex ;w reforms of any kind which, like the Slave Emancipation, require compensation to individual interests; or y what is as important as any of these, the entertainment of a sufficient staff of able and zeducatedz public servants, to conduct in a better than the present awkward manner the business of legislation and administration; every one of these things implies considerable expense, and many of them have again and again been prevented by the reluctance which aexisteda to apply to Parliament for an increased grant of public money, though b(besides that the existing means wouldcprobably bec sufficient if applied to the proper purposes)b the cost would be repaid, often a hundred-fold, in mere pecuniary advantage to the community generally. dIf so great an addition were made to the public dislike of taxation as might be the consequence of confining it to the direct form, the classes who profit by the misapplication of public moneyemighte probably succeed in saving that by which they profit, at the expense of that which would only be useful to the public.d
There is, however, a frequent plea in support of indirect taxation, which must be altogether rejected, as grounded on a fallacy. We are often told that taxes on commodities are less burthensome than other taxes, because the contributor can escape from them by ceasing to use the taxed commodity. He certainly can, if that be his object, deprive the government of the money: but he does so by a sacrifice of his own indulgences, which (if he chose to undergo it) would equally make up to him for the same amount taken from him by direct taxation. Suppose a tax laid on wine, sufficient to add five pounds to the price of the quantity of wine which he consumes in a year. He has only (we are told) to diminish his consumption of wine by 5l., and he escapes the burthen. True: but if the 5l., instead of being laid on wine, had been taken from him by an income tax, he could, by expending 5l. less in wine, equally save the amount of the tax, so that the difference between the two cases is really illusory. If the government takes from the contributor five pounds a year, whether in one way or another, exactly that amount must be retrenched from his consumption to leave him as well off as before; and in either way the same amount of sacrifice, neither more nor less, is imposed on him.
On the other hand, it is fsomef advantage on the side of indirect taxes, that what they exact from the contributor is taken at a time and in a manner likely to be convenient to him. It is paid at a time when he has at any rate a payment to make; it causes, therefore, no additional trouble, nor g(unless the tax be on necessaries)g any inconvenience but what is inseparable from the payment of the amount. He can also, except in the case of very perishable articles, select his own time for laying in a stock of the commodity, and consequently for payment of the tax. The producer or dealer who advances these taxes, is, indeed, sometimes subjected to inconvenience; but, in the case of imported goods, this inconvenience is reduced to a minimum by what is called the Warehousing System, under which, instead of paying the duty at the time of importation, he is only required to do so when he takes out the goods for consumption, which is seldom done until he has either actually found, or has the prospect of immediately finding, a purchaser.
The hstrongesth objection, however, to raising the whole or the greater part of a large revenue by direct taxes, is the impossibility of assessing them fairly iwithout a conscientious co-operation on the part of the contributors, not to be hoped for in the present low state of public moralityi . In the case of an income tax, jwe have already seen that unless it be found practicable to exempt savings altogether from the tax, the burthen cannotj be apportioned with any tolerable approach to fairness upon those whose incomes are derived from kbusiness or professionsk ; and this is in fact admitted by most of the advocates of direct taxation, who, I am afraid, generally get over the difficulty by leaving those classes untaxed, and confining their projected income tax to “realized property,” in which form it certainly has the merit of being a very easy form of plunder. But enough has been said in condemnation of this expedient. We have seen, however, that a house tax is a form of direct taxation not liable to the same objections as an income tax, and indeed liable to as few objections of any kind as perhaps any of our indirect taxes. But it would be impossible to raise by a house tax alone, the greatest part of the revenue of Great Britain, without producing a very objectionable over-crowding of the population, through the strong motive which all persons would have to avoid the tax by restricting their house accommodation. Besides, even a house tax has inequalities, and lconsequentl injustices; no tax is exempt from them, and it is neither just nor politic to make all the inequalities fall in the same places, by calling upon one tax to defray the whole or the chief part of the public expenditure. So much of the local taxation, in this country, being already in the form of a house tax, it is probable that ten millions a year would be fully as much as could beneficially be levied, through this medium, for general purposes.
A certain amount of revenue may, as we have seen, be obtained without injustice by a peculiar tax on rent. Besides the present land-tax, and an equivalent for the revenue now derived from stamp duties on the conveyance of land, some further taxation might, I have contended, at some future period be imposed, to enable the state to participate in the progressive increase of the incomes of landlords from natural causes. Legacies and inheritances, we have also seen, ought to be subjected to taxation sufficient to yield a considerable revenue. With these taxes, and a house tax of suitable amount, we should, I think, have reached the prudent limits of direct taxation, save in a national emergency so urgent as to justify the government in disregarding the mamount ofm inequality and unfairness nwhich may ultimately be found inseparable from ann income tax. The remainder of the revenue would have to be provided by taxes on consumption, and the question is, which of these are the least objectionable.
§ 2. [What forms of indirect taxation are most eligible] There are some forms of indirect taxation which must be peremptorily excluded. Taxes on commodities, for revenue purposes, must not operate as protecting duties, but must be levied impartially on every mode in which the articles can be obtained, whether produced in the country itself, or imported. An exclusion must also be put upon all taxes on the necessaries of life, or on the materials or instruments employed in producing those necessaries. Such taxes are always liable to encroach on what should be left untaxed, the incomes barely sufficient for healthful existence; and on the most favourable supposition, namely, that wages rise to compensate the labourers for the tax, it operates as a peculiar tax on profits, which is at once unjust, and detrimental to national wealth.* What remain are taxes on luxuries. And these have some properties which strongly recommend them. In the first place, they can never, by any possibility, touch those whose whole income is expended on necessaries; while they do reach those by whom what is required for necessaries, is expended on indulgences. In the next place, they operate in some cases as an useful, and the only useful, kind of sumptuary law. I disclaim all asceticism, and by no means wish to see discouraged, either by law or opinion, any indulgence (consistent with the means and obligations of the person using it) which is sought from a genuine inclination for, and enjoyment of, the thing itself; but a great portion of the aexpensesa of the higher and middle classes in most countries, and the greatest in this, is not incurred for the sake of the pleasure afforded by the things on which the money is spent, but from regard to opinion, and an idea that certain expenses are expected from them, as an appendage of station; and I cannot but think that expenditure of this sort is a most desirable subject of taxation. If taxation discourages it, some good is done, and if not, no harm; for in so far as taxes are levied on things which are desired and possessed from motives of this description, nobody is the worse for them. When a thing is bought not for its use but for its costliness, cheapness is no recommendation. As Sismondi remarks, the consequence of cheapening articles of vanity, is not that less is expended on such things, but that the buyers substitute for the cheapened article some other which is more costly, or a more elaborate quality of the same thing; and as the inferior quality answered the purpose of vanity equally well when it was equally expensive, a tax on the article bis reallyb paid by nobody: it cisc a creation of public revenue by which nobody dlosesd .*
§ 3. [Practical rules for indirect taxation] In order to reduce as much as possible the inconveniences, and increase the advantages, incident to taxes on commodities, the following are the practical rules which suggest themselves. 1st. To raise as large a revenue as conveniently may be, from those classes of luxuries which have most connexion with vanity, and least with positive enjoyment; such as the more costly qualities of all kinds of personal equipment and ornament. 2ndly. Whenever possible, to demand the tax, not from the producer, but directly from the consumer, since when levied on the producer it raises the price always by more, and often by much more, than the mere amount of the tax. Most of the minor assessed taxes in this country are recommended by both these considerations. But with regard to horses and carriages, as there are many persons to whom, from health or constitution, these are not so much luxuries as necessaries, the tax paid by those who have but one riding horse, or but one carriage, especially of the cheaper descriptions, should be low; while taxation should rise very rapidly with the number of horses and carriages, and with their costliness. 3rdly. But as the only indirect taxes which yield a large revenue are those which fall on articles of universal or very general consumption, and as it is therefore necessary to have some taxes on real luxuries, that is, on things which afford pleasure in themselves, and are valued on that account rather than for their cost; these taxes should, if possible, be so adjusted as to fall with the same proportional weight on small, on moderate, and on large incomes. This is not an easy matter; since the things which are the subjects of the more productive taxes, are in proportion more largely consumed by the poorer members of the community than by the rich. Tea, coffee, sugar, tobacco, fermented drinks, can hardly be so taxed that the poor shall not bear more than their due share of the burthen. Something might be done by making the duty on the superior qualities, which are used by the richer consumers, much higher in proportion to the value (instead of much lower, as is almost universally the practice, under the present English system); but in some cases the difficulty of at all adjusting the duty to the value, so as to prevent evasion, is said, with what truth I know not, to be insuperable; so that it is thought necessary to levy the same fixed duty on all the qualities alike: a flagrant injustice to the poorer class of contributors, unless compensated by the existence of other taxes from which, as from the present income tax, they are altogether exempt. 4thly. As far as is consistent with the preceding rules, taxation should rather be concentrated on a few articles than diffused over many, in order that the expenses of collection may be smaller, and that as few employments as possible may be burthensomely and vexatiously interfered with. 5thly. Among luxuries of general consumption, taxation should by preference attach itself to stimulants, because these, though in themselves as legitimate a indulgences as any others, are more liable than most to be used in excess, so that the check to consumption, naturally arising from taxation, is on the whole better applied to them than to other things. 6thly. As far as other considerations permit, taxation should be confined to imported articles, since these can be taxed with a less degree of vexatious interference, and with fewer incidental bad effects, than when a tax is levied on the field or on the workshop. Custom-duties are, cæteris paribus, much less objectionable than excise: but they must be laid only on things which either cannot, or at least will not, be produced in the country itself; or else their production there must be prohibited (as in England is the case with tobacco), or subjected to an excise duty of equivalent amount. 7thly. No tax ought to be kept so high as to furnish a motive to its evasion, too strong to be counteracted by ordinary means of prevention: and especially no commodity should be taxed so highly as to raise up a class of lawless characters, smugglers, illicit distillers, and the like.
bOfb the excise and custom duties clatelyc existing in this country, dall which are intrinsically unfit to form part of a good system of taxation, have, since the last reforms by Mr. Gladstone, been got rid ofd . Among these are all duties on ordinary articles of food, e whether for human beings or for cattle; those on ftimber,f as falling on the materials of lodging, which is one of the necessaries of life; all duties on the metals, and on implements made of them; gtaxesg on soap, which is a necessary of cleanliness, and on tallow, the material both of that and of hsomeh other necessaries; the tax on paper, an indispensable instrument of almost all business and of most kinds of instructioni . The duties which jnowj yield knearly the wholek of the customs and excise revenue, those on sugar, coffee, tea, wine, beer, spirits, and tobacco, are in themselves, where a large amount of revenue is necessary, extremely proper taxes; but at present grossly unjust, from the disproportionate weight with which they press on the poorer classes; and some of them (those on spirits and tobacco) are so high as to cause la considerablel amount of smuggling. It is probable that most of these taxes mmightm bear a great reduction without any material loss of revenue. In what manner the finer articles of manufacture, consumed by the rich, might most advantageously be taxed, I must leave to be decided by those who have the requisite practical knowledge. The difficulty would be, to effect it without an inadmissible degree of interference with production. In countries which, like the United States, import the principal part of the finer manufactures which they consume, there is little difficulty in the matter: and even where nothing is imported but the raw material, that may be taxed, especially the qualities of it which are exclusively employed for the fabrics used by the richer class of consumers. Thus, in England a high custom-duty on raw silk would be consistent with principle; and it might perhaps be practicable to tax the finer qualities of cotton or linen yarn, whether spun in the country itself or imported.
Of a National Debt
§ 1. [Is it desirable to defray extraordinary public expenses by loans?] The question must now be considered, how far it is right or expedient to raise money for the purposes of government, not by laying on taxes to the amount required, but by taking a portion of the capital of the country in the form of a loan, and charging the public revenue with only the interest. Nothing needs be said about providing for temporary wants by taking up money; for instance, by an issue of exchequer bills, destined to be paid off, at furthest in a year or two, from the proceeds of the existing taxes. This is a convenient expedient, and when the government does not possess a treasure or hoard, is often a necessary one, on the occurrence of extraordinary expenses, or of a temporary failure in the ordinary sources of revenue. What we have to discuss is the propriety of contracting a national debt of a permanent character; defraying the expenses of a war, or of any season of difficulty, by loans, to be redeemed either very gradually and at a distant period, or not at all.
This question has aalready beena touched upon in the First Book.* We b remarked, that if the capital taken in loans is abstracted from funds either engaged in production, or destined to be employed in it, their diversion from that purpose is equivalent to taking the amount from the wages of the labouring classes. Borrowing, in this case, is not a substitute for raising the supplies within the year. A government which borrows does actually take the amount within the year, and that too by a tax exclusively on the labouring classes: than which it could have done nothing worse, if it had supplied its wants by avowed taxation; and in that case the transaction, and its evils, would have ended with the emergency; while by the circuitous mode adopted, the value exacted from the labourers is gained, not by the state, but by the employers of labour, the state remaining charged with the debt besides, and with its interest in perpetuity. The system of public loans, in such circumstances, may be pronounced the very worst which, in the present state of civilization, is still included in the catalogue of financial expedients.
We however remarked that there are other circumstances in which loans are not chargeable with these pernicious consequences: namely, first, when what is borrowed is foreign capital, the overflowings of the general accumulation of the world; or, secondly, when it is capital which either would not have been saved at all unless this mode of investment had been open to it, or after being saved, would have been wasted in unproductive enterprises, or sent to seek employment in foreign countries. When the progress of accumulation has reduced profits either to the ultimate or to the practical minimum,—to the rate, less than which would either put a stop to the increase of capital, or send the whole of the new accumulations abroad; government may annually intercept cthesec new accumulations, without trenching on the employment or wages of the labouring classes in the country itself, or perhaps in any other country. To this extent, therefore, the loan system may be carried, without being liable to the utter and peremptory condemnation which is due to it when it overpasses this limit. What is wanted is an index to determine whether, in any given series of years, as during the last dgreatd war for example, the limit has been exceeded or not.
Such an index exists, at once a certain and an obvious one. Did the government, by its loan operations, augment the rate of interest? If it only opened a channel for capital which would not otherwise have been accumulated, or which, if accumulated, would not have been employed within the country; this implies that the capital, which the government took and expended, could not have found employment at the existing rate of interest. So long as the loans do no more than absorb this surplus, they prevent any tendency to a fall of the rate of interest, but they cannot occasion any rise. When they do raise the rate of interest, as they did in a most extraordinary degree during the eFrenche war, this is positive proof that the government is a competitor for capital with the ordinary channels of productive investment, and is carrying off, not merely funds which would not, but funds which would, have found productive employment within the country. To the full extent, therefore, to which the loans of government, during the f war, caused the rate of interest to exceed what it was before, and what it has been since, those loans gare chargeable with all the evils which have been describedg . If it be objected that interest only rose because profits rose, I reply that this does not weaken, but strengthens, the argument. If the government loans produced the rise of profits by the great amount of capital which they absorbed, by what means can they have had this effect, unless by lowering the wages of labour? It will perhaps be said, that what kept profits high during the war was not the drafts made on the national capital by the loans, but the rapid progress of industrial improvements. This, in a great measure, was the fact; and it no doubt alleviated the hardship to the labouring classes, and made the financial system which was pursued less actively mischievous, but not hless contrary to principleh . These very improvements in industry, made room for a larger amount of capital; and the government, by draining away a great part of the annual accumulations, did not indeed prevent that capital from existing ultimately, (for it started into existence with great rapidity after the peace,) but prevented it from existing at the time, and subtracted just so much, while the war lasted, from distribution among productive labourers. If the government had abstained from taking this capital by loan, and had allowed it to reach the labourers, but had raised the supplies which it required by a direct tax on the labouring classes, it would have produced i(in every respect but the expense and inconvenience of collecting the tax)i the very same economical effects j which it did produce, except that we should not now have had the debt. The course it actually took was therefore worse k than the very worst mode which it could possibly have adopted of raising the supplies within the yearl: and the only excuse, or justification, which it admits of, (so far as that excuse could be truly pleaded,) was hard necessity; the impossibility of raising so enormous an annual sum by taxation, without resorting to taxes which from their odiousness, or from the facility of evasion, it would have been found impracticable to enforcel .
When government loans are limited to the overflowings of the national capital, or to those accumulations which would not take place at all unless suffered to overflow, they are at least not liable to this grave condemnation: they occasion no privation to any one at the time, except by the payment of the interest, and may even be beneficial to the labouring class during the term of their expenditure, by employing in the direct purchase of labour, as mthatm of soldiers, sailors, &c., funds which might otherwise have quitted the country altogether. In this case therefore the question really is, what it is commonly supposed to be in all cases, namely, a choice between a great sacrifice at once, and a small one indefinitely prolonged. On this matter it seems rational to think, that the prudence of a nation will dictate the same conduct as the prudence of an individual; to submit to as much of the privation immediately, as can easily be borne, and only when any further burthen would distress or cripple them too much, to provide for the remainder by mortgaging their future income. It is an excellent maxim to make present resources suffice for present wants; the future will have its own wants to provide for. On the other hand, it may reasonably be taken into consideration that in na country increasing in wealth,n the necessary expenses of government do not increase in the same ratio as capital or population; any burthen, therefore, is always less and less felt: and since those extraordinary expenses of government which are fit to be incurred at all, are mostly beneficial beyond the existing generation, there is no injustice in making posterity pay a part of the price, if the inconvenience would be extreme of defraying the whole of it by the exertions and sacrifices of the generation which first incurred it.
§ 2. [Not desirable to redeem a national debt by a general contribution] When a country, wisely or unwisely, has burthened itself with a debt, ais ita expedient to take steps for redeeming that debt? In principle it is impossible not to maintain the affirmative. It is true that the payment of the interest, when the creditors are members of the same community, is no national loss, but a mere transfer. The transfer, however, being compulsory, is a serious evil, and the raising a great extra revenue by any system of taxation necessitates so much expense, vexation, disturbance of the channels of industry, and other mischiefs over and above the mere payment of the money wanted by the government, that to get rid of the necessity of such taxation is at all times worth a considerable effort. The same amount of sacrifice which would have been worth incurring to avoid contracting the debt, it is worth while to incur, at any subsequent time, for the purpose of extinguishing it.
Two modes have been contemplated of paying off a national debt: either at once by a general contribution, or gradually by a surplus revenue. The first would be incomparably the best, if it were practicable; and bit would be practicableb if it could justly be done by c assessment on property alone. If property bore the whole interest of the debt, property might, with great advantage to itself, pay it off; since this would be merely surrendering to a creditor the principal sum, the whole annual proceeds of which were already his by law; dandd would be equivalent to what a landowner does when he sells part of his estate, to free the remainder from a mortgage. But property, it needs hardly be said, does not pay, and cannot justly be required to pay, the whole interest of the debt. Some indeed affirm that it can, on the e plea that the existing generation is only bound to pay the debts of its predecessors from the assets it has received from them, and not from the produce of its own industry. But has no one received anything from previous generations except those who have succeeded to property? Is the whole difference between the earth as it is, with its clearings and improvements, its roads and canals, its towns and manufactories, and the earth as it was when the first human being set foot on it, of no benefit to any but those who are called the owners of the soil? Is the capital accumulated by the labour and abstinence of all former generations, of no advantage to any but those who have succeeded to the legal ownership of part of it? And have we not inherited a mass of acquired knowledge, both scientific and empirical, due to the sagacity and industry of those who preceded us, the benefits of which are the common wealth of all? Those who are born to the ownership of property have, in addition to these common benefits, a separate inheritance, and to this difference it is right that advertence should be had in regulating taxation. fIt belongs to the general financial system of the country to takef due account of this principle, and I have indicated, as in my opinion a proper mode of taking account of it, a considerable tax on legacies and inheritances. Let it be determined directly and openly what is due from property to the state, and from the state to property, and let the institutions of the state be regulated accordinglyg . Whatever is the fitting contribution from property to the general expenses of the state, in the same and in no greater proportion should it contribute towards either the interest or the repayment of the national debt.
This, however, if admitted, is fatal to any scheme for the extinction of the debt by a general assessment on the community. Persons of property could pay their share of the amount by a sacrifice of property, and have the same net income as before; but if those who have no accumulations, but only incomes, were required to make up by a single payment the equivalent of the annual charge laid on them by the taxes maintained to pay the interest of the debt, they could only do so by incurring a private debt equal to their share of the public debt; while, from the insufficiency, in most cases, of the security which they could give, the interest would amount to a much larger annual sum than their share of that now paid by the state. Besides, a collective debt defrayed by taxes, has over the same debt parcelled out among individuals, the immense advantage, that it is virtually a mutual insurance among the contributors. If the fortune of a contributor diminishes, his taxes diminish; if he is ruined, they cease altogether, and his portion of the debt is wholly transferred to the solvent members of the community. If it were laid on him as a private obligation, he would still be liable to it even when penniless.
When the state possesses property, in land or otherwise, which there are not strong reasons of public utility for its retaining at its disposal, this should be employed, as far as it will go, in extinguishing debt. Any casual gain, or godsend, is naturally devoted to the same purpose. Beyond this, the only mode which is both just and feasible, of extinguishing or reducing a national debt, is by means of a surplus revenue.
§ 3. [In what cases it is desirable to maintain a surplus revenue for the redemption of debt] The desirableness, per se, of maintaining a surplus for this purpose, does not, I think, admit of a doubt. We sometimes, indeed, hear it said that the amount should rather be left to “fructify in the pockets of the people.” This is a good argument, as far as it goes, against levying taxes unnecessarily for purposes of unproductive expenditure, but not against paying off a national debt. For, what is meant by the word fructify? If it means anything, it means productive employment; and as an argument against taxation, we must understand it to assert, that if the amount were left with the people they would save it, and convert it into capital. It is probable, indeed, that they would save a part, but extremely improbable that they would save the whole: while if taken by taxation, and employed in paying off debt, the whole is saved, and made productive. To the fundholder who receives the payment it is already capital, not revenue, and he will make it “fructify,” that it may continue to afford him an income. The objection, therefore, is not only groundless, but the real argument is on the other side: the amount is much more certain of fructifying if it is anota “left in the pockets of the people.”
It is not, however, advisable in all cases to maintain a surplus revenue for the extinction of debt. The advantage of paying off the national debt of Great Britain, for instance, is that it would enable us to get rid of the worse half of our b taxation. But of this worse half some portions must be worse than others, and to get rid of those would be a greater benefit proportionally than to get rid of the rest. If renouncing a surplus revenue would enable us to dispense with a tax, we ought to consider the very worst of all our taxes as precisely the one which we are keeping up for the sake of ultimately abolishing taxes not so bad as itself. In a country advancing in wealth, whose increasing revenue gives it the power of ridding itself from time to time of the most inconvenient portions of its taxation, I conceive that the increase of revenue should rather be disposed of by taking off taxes, than by liquidating debt, as long as any very objectionable imposts remain. In the present state of England, therefore, I hold it to be good policy in the government, when it has a surplus of an apparently permanent character, to take off taxes, provided these are rightly selected. Even when no taxes remain but such as are not unfit to form part of a permanent system, it is wise to continue the same policy by experimental reductions of those taxes, until the point is discovered at which a given amount of revenue can be raised with the smallest pressure on the contributors. After this, such surplus revenue as might arise from any further increase of the produce of the taxes, should not, I conceive, be remitted, but applied to the redemption of debt. Eventually, it might be expedient to appropriate the entire produce of particular taxes to this purpose; since there would be more assurance that the liquidation would be persisted in, if the fund destined to it were kept apart, and not blended with the general revenues of the state. The csuccession dutiesc would be peculiarly suited to such a purpose, since taxes paid as they are, out of capital, would be better employed in reimbursing capital than in defraying current expenditure. If this separate appropriation were made, any surplus afterwards arising from the increasing produce of the other taxes, and from the saving of interest on the successive portions of debt paid off, might form a ground for dad remission of taxation.
It has been contended that some amount of national debt is desirable, and almost indispensable, as an investment for the savings of the poorer or more inexperienced part of the community. Its convenience in that respect is undeniable; but (besides that the progress of industry is gradually affording other modes of investment almost as safe and untroublesome, such as the shares or obligations of great public companies) the only real superiority of an investment in the funds consists in the national guarantee, and this could be afforded by other means than that of a public debt, involving compulsory taxation. One mode which would answer the purpose, would be a national bank of deposit and discount, with ramifications throughout the country; which might receive any money confided to it, and either fund it at a fixed rate of interest, or allow interest on a floating balance, like the joint stock banks; the interest given being of course lower than the rate at which individuals can borrow, in proportion to the greater security of a government investment; and the expenses of the establishment being defrayed by the difference between the interest which the bank would pay, and that which it would obtain, by lending its deposits on mercantile, landed, or other security. There are no insuperable objections in principle, enor, I should think,e in practice, to an institution of this sort, as a means of supplying the same convenient mode of investment now afforded by the public funds. It would constitute the state a great insurance company, to insure that part of the community who live on the interest of their property, against the risk of losing it by the bankruptcy of those to whom they might otherwise be under the necessity of confiding it.
Of the Ordinary Functions of Government, Considered as to Their Economical Effects
§ 1. [Effects of imperfect security of person and property] Before we discuss the line of demarcation between the things with which government should, and those with which they should not, directly interfere, it is necessary to consider the economical effects, whether of a bad or of a good complexion, arising from the manner in which they acquit themselves of the duties which devolve on them in all societies, and which no one denies to be incumbent on them.
The first of these is the protection of person and property. There is no need to expatiate on the influence exercised over the economical interests of society by the degree of completeness with which this duty of government is performed. Insecurity of person and property, is as much as to say, uncertainty of the connexion between all human exertions or sacrifice, and the attainment of the ends for the sake of which they are undergone. It means, uncertainty whether they who sow shall reap, whether they who produce shall consume, and they who spare to-day shall enjoy to-morrow. It means, not only that labour and frugality are not the road to acquisition, but that violence is. When person and property are to a certain degree insecure, all the possessions of the weak are at the mercy of the strong. No one can keep what he has produced, unless he is more capable of defending it, than others who give no part of their time and exertions to useful industry are of taking it from him. The productive classes, therefore, when the insecurity surpasses a certain point, being unequal to their own protection against the predatory population, are obliged to place themselves individually in a state of dependence on some member of the predatory class, that it may be his interest to shield them from all depredation except his own. In this manner, in the Middle Ages, allodial property generally became feudal, and numbers of the poorer freemen voluntarily made themselves and their posterity serfs of some military lord.
Nevertheless, in attaching to this great requisite, security of person and property, the importance which is justly due to it, we must not forget that even for economical purposes there are other things quite as indispensable, the presence of which will often make up for a very considerable degree of imperfection in the protective arrangements of government. As was observed in a previous chapter,* the free cities of Italy, Flanders, and the Hanseatic league, were habitually in a state of such internal turbulence, varied by such destructive external wars, that person and property enjoyed very imperfect protection; yet during several centuries they increased rapidly in wealth and prosperity, brought many of the industrial arts to a high degree of advancement, carried on distant and dangerous voyages of exploration and commerce with extraordinary success, became an overmatch in power for the greatest feudal lords, and could defend themselves even against the sovereigns of Europe: because in the midst of turmoil and violence, the citizens of those towns enjoyed a certain rude freedom, under conditions of union and co-operation, which, taken together, made them a brave, energetic, and high-spirited people, and fostered a great amount of public spirit and patriotism. The prosperity of these and other free states in a lawless age, shows that a certain degree of insecurity, in some combinations of circumstances, has good as well as bad effects, by making energy and practical ability the conditions of safety. Insecurity paralyzes, only when it is such in nature and in degree, that no energy of which mankind in general are capable, affords any tolerable means of self-protection. And this is a main reason why oppression by the government, whose power is generally irresistible by any efforts that can be made by individuals, has so much more baneful an effect on the springs of national prosperity, than almost any degree of lawlessness and turbulence under free institutions. Nations have acquired some wealth, and made some progress in improvement, in states of social union so imperfect as to border on anarchy: but no countries in which the people were aexposed without limita to arbitrary exactions from the officers of government, ever yet continued to have industry or wealth. A few generations of such a government never fail to extinguish both. Some of the fairest, and once the most prosperous, regions of the earth, have, under the Roman and afterwards under the Turkish dominion, been reduced to a desert, solely by that cause. I say solely, because they would have recovered with the utmost rapidity, as countries always do, from the devastations of war, or any other temporary calamities. Difficulties and hardships are often but an incentive to exertion: what is fatal to it, is the belief that it will not be suffered to produce its fruits.
§ 2. [Effects of over-taxation] Simple over-taxation by government, though a great evil, is not comparable in the economical part of its mischiefs to exactions much more moderate in amount, a which either subject the contributor to the arbitrary mandate of government officers, or are so laid on as to place skill, industry, and frugality at a disadvantage. The burthen of taxation in our own country is very great, yet as every one knows its limit, and is seldom made to pay more than he expects and calculates on, and as the modes of taxation are not of such a kind as much to impair the motives to industry and economy, the sources of prosperity are little diminished by the pressure of taxation; they may even, as some think, be increased, by the extra exertions made to compensate for the pressure of the taxes. But in the barbarous despotisms of many countries of the East, where taxation consists in fastening upon those who have succeeded in acquiring something, in order to confiscate it, unless the possessor buys its release by submitting to give some large sum as a compromise, we cannot expect to find voluntary industry, or wealth derived from any source but plunder. And even in comparatively civilized countries, bad modes of raising a revenue have had effects similar in kind, though in an inferior degree. French writers before the Revolution represented the taille as a main cause of the backward state of agriculture, and of the wretched condition of the rural population; not from its amount, but because, being proportioned to the visible capital of the cultivator, it gave him a motive for appearing poor, which sufficed to turn the scale in favour of indolence. The arbitrary powers also of fiscal officers, of intendants and subdélégués, were more destructive of prosperity than a far larger amount of exactions, because they destroyed security: there was a marked superiority in the condition of the pays d’états, which were exempt from this scourge. The universal venality ascribed to Russian functionaries, must be an immense drag on the capabilities of economical improvement possessed so abundantly by the Russian empire: since the emoluments of public officers must depend on the success with which they can multiply vexations, for the purpose of being bought off by bribes.
Yet mere excess of taxation, even when not aggravated by uncertainty, is, independently of its injustice, a serious economical evil. It may be carried so far as to discourage industry by insufficiency of reward. Very long before it reaches this point, it prevents or greatly checks accumulation, or causes the capital accumulated to be sent for investment to foreign countries. Taxes which fall on profits, even though that kind of income may not pay more than its just share, necessarily diminish the motive to any saving, except b for investment in foreign countries where profits are higher. Holland, for example, seems to have long cagoc reached the practical minimum of profits: already in the last century her wealthy capitalists had a great part of their fortunes invested in the loans and joint-stock speculations of other countries: and this low rate of profit is ascribed to the heavy taxation, which had been in some measure forced on her by the circumstances of her position and history. The taxes indeed, besides their great amount, were many of them on necessaries, a kind of tax peculiarly injurious to industry and accumulation. But when the aggregate amount of taxation is very great, it is inevitable that recourse must be had for part of it to taxes of an objectionable character. And any taxes on consumption, when heavy, even if not operating on profits, have something of the same d effect, by driving persons of moderate means to live abroad, often taking their capital with them. Although I by no means join with those political economists who think no state of national existence desirable in which there is not a rapid increase of wealth, I cannot overlook the many disadvantages to an independent nation from being brought prematurely to a stationary state, while the neighbouring countries continue advancing.
§ 3. [Effects of imperfection in the system of the laws, and in the administration of justice] The subject of protection to person and property, considered as afforded by a government, ramifies widely, into a number of indirect channels. It embraces, for example, the whole subject of the perfection or inefficiency of the means provided for the ascertainment of rights and the redress of injuries. Persons and property cannot be considered secure where the administration of justice is imperfect, either from defect of integrity or capacity in the tribunals, or because the delay, vexation, and expense accompanying their operation impose a heavy tax on those who appeal to them, and make it preferable to submit to any endurable amount of the evils which they are designed to remedy. In England there is no fault to be found with the administration of justice, bin point of pecuniary integrityb ; a result which the progress of social improvement may also be supposed to have brought about in several other nations of Europe. But legal and judicial imperfections of other kinds are abundant; and, in England especially, are a large abatement from the value of the services which the government renders back to the people in return for our enormous taxation. In the first place, the incognoscibility (as Bentham termed it) of the law, and its extreme uncertainty, even to those who best know it, render a resort to the tribunals often necessary for obtaining justice, when, there being no dispute as to facts, no litigation ought to be required. In the next place, the procedure of the tribunals is so replete with delay, vexation, and expense, that the price at which justice is at last obtained is an evil outweighing a very considerable amount of injustice; and the wrong side, even that which the law considers such, has many chances of gaining its point, through the abandonment of litigation by the other party for want of funds, or through a compromise in which a sacrifice is made of just rights to terminate the suit, or through some technical quirk, whereby a decision is obtained on some other ground than the merits. This last detestable incident often happens without blame to the judge, under a system of law, of which a great part rests on no rational principles adapted to the present state of society, but was originally founded partly on a kind of whims and conceits, and partly on the principles and incidents of feudal tenure, (which now survive only as legal fictions;) and has only been very imperfectly adapted, as cases arose, to the changes which had taken place in society. Of all parts of the English legal system, the Court of Chancery, which has the best substantive law, chas beenc incomparably the worst as to delay, vexation, and expense; and this is the only tribunal for most of the classes of cases which are in their nature the most complicated, such as cases of partnership, and the great range and variety of cases which come under the denomination of trust. dThe recent reforms in this Court have abated the mischief, but are still far from having removed it.d
Fortunately for the prosperity of England, the greater part of the mercantile law is comparatively modern, and was made by the tribunals, by the simple process of recognising and giving force of law to the usages which, from motives of convenience, had grown up among merchants themselves: so that this part of the law, at least, was substantially made by those who were most interested in its goodness: while the defects of the tribunals have been the less practically pernicious in reference to commercial transactions, because the importance of credit, which depends on character, renders the restraints of opinion (though, as daily experience proves, an insufficient) yet a very powerful, protection against those forms of mercantile dishonesty which are generally recognised as such.
The imperfections of the law, both in its substance and in its procedure, fall heaviest upon the interests connected with what is technically called real property; in the general language of European jurisprudence, immoveable property. With respect to all this portion of the wealth of the community, the law fails egregiously in the protection which it undertakes to provide. It fails, first, by the uncertainty, and the maze of technicalities, which make it impossible for any one, at however great an expense, to possess a title to land which he can positively know to be unassailable. It fails, secondly, in omitting to provide due evidence of transactions, by a proper registration of legal documents. It fails, thirdly, by creating a necessity for operose and expensive instruments and formalities (independently of fiscal burthens) on occasion of the purchase and sale, or even the lease or mortgage, of immoveable property. And, fourthly, it fails by the intolerable expense and delay of law proceedings, in almost all cases in which real property is concerned. There is no doubt that the greatest sufferers by the defects of the higher courts of civil law are the landowners. Legal expenses, either those of actual litigation, or of the preparation of legal instruments, form, I apprehend, no inconsiderable item in the annual expenditure of most persons of large landed property, and the saleable value of their land is greatly impaired, by the difficulty of giving to the buyer complete confidence in the title; independently of the legal expenses which accompany the transfer. Yet the landowners, though they have been masters of the legislation of England, to say the least since 1688, have never made a single move in the direction of law reform, and have been strenuous opponents of some of the improvements of which they would more particularly reap the benefit; especially that great one of a registration of contracts affecting land, which when proposed by a Commission of eminent real property lawyers, and introduced into the House of Commons by Lord Campbell, was so offensive to the general body of landlords, and was rejected by so large a majority, as to have elonge discouraged any repetition of the attempt.* This irrational hostility to improvement, in a case in which their own interest would be the most benefited by it, must be ascribed to an intense timidity on the subject of their titles, generated by the defects of the very law which they refuse to alter; and to a conscious ignorance, and incapacity of judgment, on all legal subjects, which makes them helplessly defer to the opinion of their professional advisers, heedless of the fact that every imperfection of the law, in proportion as it is burthensome to them, brings gain to the lawyer.
In so far as the defects of legal arrangements are a mere burthen on the landowner, they do not much affect the sources of production; but the uncertainty of the ftitlef under which land is held, must often act as a great discouragement to the expenditure of capital in its improvement; and the expense of making transfers, operates to prevent land from coming into the hands of those who would use it to most advantage; often amounting, in the case of small purchases, to more than the price of the land, and tantamount, therefore, to a prohibition of the purchase and sale of land in small portions, unless in exceptional circumstances. Such purchases, however, are almost everywhere extremely desirable, there being hardly any country in which landed property is not either too much or too little subdivided, requiring either that great estates should be broken down, or that small ones should be bought up and consolidated. To make land as easily transferable as stock, would be one of the greatest economical improvements which could be bestowed on a country; and has been shown, again and again, to have no insuperable difficulty attending it.
Besides the excellences or defects that belong to the law and judicature of a country as a system of arrangements for attaining direct practical ends, much also depends, even in an economical point of view, upon the moral influence of the law. Enough has been said in a former place,* on the degree in which both the industrial and all other combined operations of mankind depend for efficiency on their being able to rely on one another for probity and fidelity to engagements; from which we see how greatly even the economical prosperity of a country is liable to be affected, by anything in its institutions by which either integrity and trustworthiness, or the contrary qualities, are encouraged. The law everywhere ostensibly favours at least pecuniary honesty and the faith of contracts; but if it affords facilities for evading those obligations, by trick and chicanery, or by the unscrupulous use of riches in instituting unjust or resisting just litigation; if there are ways and means by which persons may attain the ends of roguery, under the apparent sanction of the law; to that extent the law is demoralizing, even in regard to pecuniary integrity. And such cases are, unfortunately, frequent under the English system. If, again, the law, by a misplaced indulgence, protects idleness or prodigality against their natural consequences, or dismisses crime with inadequate penalties, the effect, both on the prudential and on the social virtues, gis unfavourableg . When the law, by its own dispensations and injunctions, establishes injustice between individual and individual; as all laws do which recognise any form of slavery, as the laws of all countries do, though not all in the same degree, in respect to the family relations; and as the laws of many countries do, though in still more unequal degrees, as between rich and poor; the effect on the moral sentiments of the people is still more disastrous. But these subjects introduce considerations so much larger and deeper than those of political economy, that I only advert to them in order not to pass wholly unnoticed, things superior in importance to those of which I treat.
The Same Subject Continued
§ 1. [Laws of Inheritance] Having spoken thus far of the effects produced by the excellences or defects of the general system of the law, I shall now touch upon those resulting from the special character of particular parts of it. As a selection must be made, I shall confine myself to a few leading topics. The portions of the civil law of a country which are of most importance economically (next to those which determine the status of the labourer, as slave, serf, or free), are those relating to the two subjects of Inheritance and Contract. Of the laws relating to contract, none are more important economically, than the laws of partnership, and those of insolvency. It happens that on all these three points, there is just ground for condemning some of the provisions of the English law.a
With regard to Inheritance, I have, in an early bchapterb , considered the general principles of the subject, and suggested what appear to me to be, c putting all prejudice apart, the best dispositions which the law could adopt. Freedom of bequest as the general rule, but limited by two things: first, that if there are descendants, who, being unable to provide for themselves, would become burthensome to the state, the equivalent of whatever the state would accord to them should be reserved from the property for their benefit; and secondly, that no one person should be permitted to acquire, by inheritance, more than the amount of a moderate independence. In case of intestacy, the whole property to escheat to the state: which should be bound to make a just and reasonable provision for descendants, that is, such a provision as the parent or ancestor ought to have made, their circumstances, capacities, and mode of bringing up being considered.
The laws of inheritance, however, have probably several phases of improvement to go through, before ideas so far removed from present modes of thinking will be taken into serious consideration: and as, among the recognised modes of determining the succession to property, some must be better and others worse, it is necessary to consider which of them deserves the preference. As an intermediate course, therefore, d I would recommend the extension to all property, of the present English law of inheritance affecting personal property (freedom of bequest, and in case of intestacy, equal division): except that no rights should be acknowledged in collaterals, and that the property of those who have neither descendants nor ascendants, and make no will, should escheat to the state.
The laws of existing nations deviate from these maxims in two opposite ways. In England, and eine most of the countries fwheref the influence of feudality is still felt in the laws, one of the objects aimed at in respect to land and other immoveable property, is to keep it together in large masses: accordingly, in cases of intestacy, it passes, generally speaking (for the local custom of ga fewg places is different), exclusively to the eldest son. And though the rule of primogeniture is not binding on testators, who in England have nominally the power of bequeathing their property as they please, any h proprietor may so exercise this power as to deprive his iimmediate successori of it, by entailing the property on one particular line of his descendants: which, besides preventing it from passing by inheritance in any other than the prescribed manner, is attended with the incidental consequence of precluding it from being sold; since each successive possessor, having only a life interest in the property, cannot alienate it for a longer period than his own life. In fsomef other countries, such as France, the law, on the contrary, compels division of inheritances; not only, in case of intestacy, sharing the property, both real and personal, equally among all the children, or (if there are no children) among all relatives in the same degree of propinquity; but also not recognising any power of bequest, or recognising it over only a limited portion of the property, the remainder being subjected to compulsory equal division.
Neither of these systems, I apprehend, was introduced, or is kperhapsk maintained, in the countries where it exists, from any general considerations of justice, or any foresight of economical consequences, but chiefly from political motives; in the one case to keep up large hereditary fortunes, and a landed aristocracy; in the other, to break these down, and prevent their resurrection. The first object, as an aim of national policy, I conceive to be eminently undesirable: lwith regard to the secondl , I have pointed out what seems to me a better mode of attaining it. The merit, or demerit, however, of either purpose, belongs to the general science of politics, not to the limited department of that science which mis here treated ofm . Each of the two systems is a real and efficient instrument for the purpose intended by it; but each, as it appears to me, achieves that purpose at the cost of much mischief.
§ 2. [Law and Custom of Primogeniture] There are two arguments of an economical character, which are urged in favour of primogeniture. One is, the stimulus applied to the industry and ambition of younger children, by leaving them to be the architects of their own fortunes. This argument was put by Dr. Johnson in a manner more forcible than complimentary to an hereditary aristocracy, when he said, by way of recommendation of primogeniture, that it “makes but one fool in a family.” It is curious that a defender of aristocratic institutions should be the person to assert that to inherit such a fortune as takes away any necessity for exertion, is generally fatal to activity and strength of mind: in the present state of education, however, the proposition, with some allowance for exaggeration, may be admitted to be true. But whatever force there is in the argument, counts in favour of limiting the eldest, as well as all the other children, to a mere provision, and dispensing with even the “one fool” whom Dr. Johnson was willing to tolerate. If unearned riches are so pernicious to the character, one does not see why, in order to withhold the poison from the junior members of a family, there should be no way but to unite all their separate potions, and administer them in the largest possible dose to one selected victim. aItbcannot beb necessary to inflict this great evil on the eldest son, for want of knowing what else to do with a large fortune.a
Some writers, however, look upon the effect of primogeniture in stimulating industry, as depending, not so much on the poverty of the younger children, as on the contrast between that poverty and the riches of the elder; thinking it indispensable to the activity and energy of the hive, that there should be a huge drone here and there, to impress the working bees with a due sense of the advantages of honey. “Their inferiority in point of wealth,” says Mr. M‘Culloch, speaking of the younger children, “and their desire to escape from this lower cstationc , and to attain to the same level with their elder brothers, inspires them with an energy and vigour they could not otherwise feel. But the advantage of preserving large estates from being frittered down by a scheme of equal division, is not limited to its influence over the younger children of their owners. It raises universally the standard of competence, and gives new force to the springs which set industry in motion. The manner of living among the great landlords is that in which every one is ambitious of being able to indulge; and their habits of expense, though sometimes injurious to themselves, act as powerful incentives to the ingenuity and enterprise of the other classes, who never think their fortunes sufficiently ample, unless they will enable them to emulate the splendour of the richest landlords; so that the custom of primogeniture seems to render all classes more industrious, and to augment at the same time, the mass of wealth and the scale of enjoyment.”*
The portion of truth, I dcan hardlyd say contained in these observations, but recalled by them, I apprehend to be, that a state of complete equality of fortunes would not be favourable to eactive exertion for the increase of wealthe . Speaking of the mass, it is as true of wealth as of most other distinctions—of talent, knowledge, virtue—that those who already have, or think they have, as much of it as f their neighbours, will seldom g exert themselves to acquire more. But it is not therefore necessary that society should provide a set of persons with large fortunes, to fulfil the social duty of standing to be looked at, with envy and admiration, by the aspiring poor. The fortunes which people have acquired for themselves, answer the purpose quite as well, indeed much better; since a person is more powerfully stimulated by the example of somebody who has earned a fortune, than by the mere sight of somebody who possesses one; and the former is necessarily an example of prudence and frugality as well as industry, while the latter much oftener sets an example of profuse expense, which spreads, with pernicious effect, to the very class on whom the sight of riches is supposed to have so beneficial an influence, namely, those whose weakness of mind, and taste for ostentation, makes “the splendour of the richest landlords” attract them with the most potent spell. In America there are few or no h hereditary fortunes; yet industrial energy, and the ardour of accumulation, are not supposed to be particularly backward in that part of the world. When a country has once fairly entered into the industrial career, which is the iprincipali occupation of the modern, as war was that of the ancient and mediæval world, the desire of acquisition by industry needs no factitious stimulus: the advantages naturally inherent in riches, and the character they assume of a test by which talent and success in life are habitually measured, are an ample security for their being pursued with sufficient intensity and zeal. As to the deeper consideration, that the diffusion of wealth, and not its concentration, is desirable, and that the jmorej wholesome state of society is not that in which immense fortunes are possessed by a few and coveted by all, but that in which the greatest possible numbers possess and are contented with a moderate competency, which all may hope to acquire: I refer to it in this place, only to show, how widely separated, on social questions, is the entire mode of thought of the kdefendersk of primogeniture, from that which is partially promulgated in the present treatise.
The other economical argument in favour of primogeniture, has lspeciall reference to landed property. It is contended that the habit of dividing inheritances equally, or with an approach to equality, among children, promotes the subdivision of land into mportionsm too small to admit of being cultivated in an advantageous manner. This argument, eternally reproduced, has again and again been refuted by English and Continental writers. It proceeds on a supposition entirely at variance with that on which all the theorems of political economy are grounded. It assumes that mankind in general will habitually act in a manner opposed to their immediate and obvious pecuniary interest. For the division of the inheritance does not necessarily imply division of the land; which may be held in common, as is not unfrequently the case in France and Belgium; or may become the property of one of the coheirs, being charged with the shares of the nothersn by o way of mortgage; or they may sell it outright, and divide the proceeds. When the division of the land would diminish its productive power, it is the direct interest of the heirs to adopt some one of these arrangements. Supposing, however, what the argument assumes, that either from legal difficulties or from their own stupidity and barbarism, they would not, if left to themselves, obey the dictates of this obvious interest, but would insist upon cutting up the land bodily into equal parcels, with the effect of impoverishing themselves; this would be an objection to a law such as exists in France, of compulsory division, but can be no reason why testators should be discouraged from exercising the right of bequest in general conformity to the rule of equality, since it would always be in their power to provide that the division of the inheritance should take place without dividing the land itself. That the attempts of the advocates of primogeniture to make out a case by facts against the custom of equal division, are equally abortive, has been shown in a former pplacep . In all countries, or parts of countries, in which the division of inheritance is accompanied by small holdings, it is because small holdings are the general system of the country, even on the estates of the great proprietors.
Unless a strong case of social utility can be made out for primogeniture, it stands sufficiently condemned by the general principles of justice; being a broad distinction in the treatment of one person and of another, grounded solely on an accident. There is no need, therefore, to make out any case of economical evil against primogeniture. Such a case, however, and a very strong one, may be made. It is a natural effect of primogeniture to make the landlords a needy class. The object of the institution, or custom, is to keep the land together in large masses, and this it commonly accomplishes; but the legal proprietor of a large domain is not necessarily the bonâ fide owner of the whole income which it yields. It is usually charged, in each generation, with provisions for the other children. It is often charged still more heavily by the imprudent expenditure of the proprietor. Great landowners are generally improvident in their expenses; they live up to their incomes when at the highest, and if any change of circumstances diminishes their resources, some time elapses before they make up their minds to retrench. Spendthrifts in other classes are ruined, and disappear from society; but the spendthrift landlord usually holds fast to his land, even when he has become a mere receiver of its rents for the benefit of creditors. The same desire to keep up the “splendour” of the family, which gives rise to the custom of primogeniture, indisposes the qownerq to sell a part in order to set free the remainder; their apparent are therefore habitually greater than their real means, and they are under a perpetual temptation to proportion their expenditure to the former rather than to the latter. From such causes as these, in almost all countries of great landowners, the majority of landed estates are deeply mortgaged; and instead of having capital to spare for improvements, it requires all the increased value of land, caused by rther rapid increase of the wealth and population of the country, to preserve the class from being impoverished.
§ 3. [Entails] To avert this impoverishment, recourse was had to the contrivance of entails, whereby the order of succession was irrevocably fixed, and each holder, having only a life interest, was unable to burthen his successor. The land thus passing, free from debt, into the possession of the heir, the family could not be ruined by the improvidence of its existing representative. The economical evils arising from this disposition of property were partly of the same kind, partly different, but on the whole greater, than those arising from primogeniture. The possessor could not now ruin his successors, but he could still ruin himself: he was not at all more likely than in the former case to have the means necessary for improving the property: while, even if he had, he was still less likely to employ them for that purpose, when the benefit was to accrue to a person whom the entail made independent of him, while he had probably younger children to provide for, in whose favour he could not now charge the estate. While thus disabled from being himself an improver, neither could he sell the estate to somebody who would; since entail precludes alienation. In general he has even been unable to grant leases beyond the term of his own life; “for,” says Blackstone, “if such leases had been valid, then, under cover of long leases, the issue might have been virtually disinherited;”[*] and it has been necessary in Great Britain to relax, by statute, the rigour of entails, in order to allow either of long leases, or of the execution of improvements at the expense of the estate. It may be added that the heir of entail, being assured of succeeding to the family property, however undeserving of it, and being aware of this from his earliest years, has much more than the ordinary chances of growing up idle, dissipated, and profligate.
In England, the power of entail is more limited by law, than in Scotland and in most other countries where it exists. A landowner can settle his property upon any number of persons successively who are living at the time, and upon one unborn person, on whose attaining the age of twenty-one, the entail expires, and the land becomes his absolute property. An estate may in this manner be transmitted through a son, or a son and grandson, living when the deed is executed, to an unborn child of that grandson. It has been maintained that this power of entail is not sufficiently extensive to do any mischief: in truth, however, it is much larger than it seems. Entails very rarely expire; the first heir of entail, when of age, joins with the existing possessor in resettling the estate, so as to prolong the entail for a further term. Large properties, therefore, are rarely free for any considerable period, from the restraints of a strict settlement; athough the mischief is in one respect mitigated, since in the renewal of the settlement for one more generation, the estate is usually charged with abprovisionb for younger childrena.
In an economical point of view, the best system of landed property is that in which land is most completely an object of commerce; passing readily from hand to hand when a buyer can be found to whom it is worth while to offer a greater sum for the land, than the value of the income drawn from it by its existing possessor. This of course is not meant of ornamental property, which is a source of expense, not profit; but only of land employed for industrial uses, and held for the sake of the income which it affords. Whatever facilitates the sale of land, tends to make it a more productive instrument cofc the community at large; whatever prevents or restricts its sale, subtracts from its usefulness. Now, not only has entail this effect, but primogeniture also. The desire to keep land together in large masses, from other motives than that of promoting its productiveness, often prevents changes and alienations which would increase its efficiency as an instrument.
§ 4. [Law of compulsory equal division of inheritances] On the other hand, a law which, like the French, restricts the power of bequest to a narrow compass, and compels the equal division of the whole or the greater part of the property among the children, seems to me, though on different grounds, also very seriously objectionable. The only reason for recognising in the children any aclaima at all to more than a provision, sufficient to launch them binb life, and enable them to find a livelihood, is grounded on the expressed or presumed wish of the parent; whose claim to dispose of what is actually his c own, cannot be set aside by any pretensions of others to receive what is not theirs. To control the rightful owner’s liberty of gift, by creating in the children a legal right superior to it, is to postpone a real claim to an imaginary one. To this great and paramount objection to the law, numerous secondary ones may be added. Desirable as it is that the parent should treat the children with impartiality, and not make an eldest son or a favourite, impartial division is not always synonymous with equal division. Some of the children mayd, without fault of their own, be less capable than others of providing for themselves: some may, by other means than their own exertions, be already provided for:d and impartiality may therefore require that the rule observed should not be one of equality, but of compensation. Even when equality is ethe object, there are sometimes better means of attaining it, than the inflexible rules by which law must necessarily proceed.e If one of the coheirs, being of a quarrelsome forf litigious disposition, stands upon his utmost rights, the law cannot make equitable adjustments; it cannot apportion the property as seems best for the collective interest of gall concernedg ; if there are several parcels of land, and the heirs cannot agree about their value, the law cannot give a parcel to each, but every separate parcel must be either put up to sale or divided: if there is a residence, or a park or pleasure-ground, which would be destroyed, as such, by subdivision, it must be sold, hperhaps at a great sacrifice both of money and of feelingh . But what the law could not do, the parent could. By means of the liberty of bequest, all these points might be determined according to reason and the general interest of the persons concerned; and the spirit of the principle of equal division might be the better observed, because the testator was emancipated from its letter. Finally, it would not then be necessary, as under the compulsory system it is, that the law should interfere authoritatively in the concerns of iindividualsi , not only on the occurrence of a death, but throughout life, in order to guard against the attempts of parents to frustrate the legal claims of their heirs, under colour of gifts and other alienations inter vivos.
In conclusion; all owners of property should, I conceive, have power to dispose by will of every part of it, but not to determine the person who should succeed to it after the jdeathj of all who were living when the will was made. Under what restrictions it should be allowable to bequeath property to one person for life, with remainder to another person already in existence, is a question belonging to general legislation, not to political economy. Such settlements would be no greater hindrance to alienation than any case of joint ownership, since the consent of persons actually in existence is all that would be necessary for any new arrangement respecting the property.
§ 5. [Laws of Partnership] From the subject of Inheritance I now pass to that of Contracts, and among these, to the important subject of the Laws of Partnership. How much of good or evil depends upon these laws, and how important it is that they should be the best possible, is evident to all who recognise in the extension of the co-operative principle ain the larger sense of the term,a the great economical necessity of modern industry. The progress of the productive arts requiring that many sorts of industrial occupation should be carried on by larger and larger capitals, the productive power of industry must suffer by whatever impedes the formation of large capitals through the aggregation of smaller ones. Capitals of the requisite magnitude belonging to single owners, do not, in most countries, exist in the needful abundance, and would be still less numerous if the laws favoured the diffusion instead of the concentration of property: while it is most undesirable that all those improved processes, and those means of efficiency and economy in production, which depend on the possession of large funds, should be monopolies in the hands of a few rich individuals, through the difficulties experienced by persons of moderate or small means in associating their capital. Finally, I must repeat my conviction, that the industrial economy which divides society absolutely into two portions, the payers of wages and the receivers of them, the first counted by thousands and the last by millions, is neither fit for, nor capable of, indefinite duration: and the possibility of changing this system for one of combination without dependence, and unity of interest instead of organized hostility, depends altogether upon the future developments of the Partnership principle.
Yet there is scarcely any country whose laws do not throw great, and in most cases, intentional obstacles in the way of the formation of any numerous partnership. In England it is already a serious discouragement, that b differences among partners are, practically speaking, only capable of adjudication by the Court of Chancery: which is often worse than placing such questions out of the pale of all law; since any one of the disputant parties, who is either dishonest or litigious, can involve the others at his pleasure in the c expense, trouble, and anxiety, which are the unavoidable accompaniments of a d Chancery suit, without their having the power of freeing themselves from the infliction even by breaking up the association.* Besides this, it required, until lately, a separate Act of the legislature before any joint-stock association could legally constitute itself, and be empowered to act as one body. By a statute passed e a few years ago, this necessity is done awayf; but the statute in question is described by competent authorities as a “mass of confusion,” of which they say that there “never was such an infliction” on persons entering into partnershipf .* When a number of persons, whether few or many, freely desire to unite their funds for a common undertaking, not asking any peculiar privilege, nor the power to dispossess any one of property, the law can have no good reason for throwing difficulties in the way of the realization of the project. On compliance with a few simple conditions of publicity, any body of persons ought to have the power of constituting themselves into a joint-stock company, or société en nom collectif, without asking leave either of any public officer or of parliamentg . As an association of many partners must practically be under the management of a few, every facility h ought to be afforded to the body for exercising the necessary control and check over those few, whether they be themselves members of the association, or merely its hired servants: and in this point the English system is still at a lamentable distance from the standard of perfectioni .
§ 6. [Partnership with limited liability. Chartered Companies] Whatever facilities, however, English law amighta give to associations formed on the principles of ordinary partnership, there is one sort of joint-stock association which buntil the year 1855b it absolutely cdisallowedc , and which dcould only bed called into existence by a special act either of the legislature or of the crown. I mean, associations with limited liability.
Associations with limited liability are of two kinds: in one, the liability of all the partners is limited, in the other that of some of them only. The first is the société anonyme of the French law, which in England ehad until latelye no other name than that of “chartered company:” meaning thereby a joint-stock company whose shareholders, by a charter from the crown or a special enactment of the legislature, fstoodf exempted from any liability for the debts of the concern, beyond the amount of their subscriptions. g The other species of limited partnership is that known to the French law under the name of commandite; of this, which in England is hstillh unrecognised and illegal, I shall speak presently.
If a number of persons choose to associate for carrying on any operation of commerce or industry, agreeing among themselves and announcing to those with whom they deal that the members of the association do not undertake to be responsible beyond the amount of the subscribed capital; is there any reason that the law should raise objections to this proceeding, and should impose on them the unlimited responsibility which they disclaim? For whose sake? Not for that of the partners themselves; for it is they whom the limitation of responsibility benefits and protects. It must therefore be for the sake of third parties; namely, those who may have transactions with the association, and to whom it may run in debt beyond what the subscribed capital suffices to pay. But nobody is obliged to deal with the association: still less is any one obliged to give it unlimited credit. The class of persons with whom such associations have dealings are in general perfectly capable of taking care of themselves, and there seems no reason that the law should be more careful of their interests than they will themselves be; provided no false representation is held out, and they are aware from the first what they have to trust to. The law is warranted in requiring from all joint-stock associations with limited responsibilities, not only that the amount of capital on which they profess to carry on business should either be actually paid up or security given for it (if, indeed, with complete publicity, such a requirement would be necessary), but also that such accounts should be kept, accessible to individuals, and if needful, published to the world, as shall render it possible to ascertain at any time the existing state of the company’s affairs, and to learn whether the capital which is the sole security for the engagements into which they enter, still subsists unimpaired: the fidelity of such accounts being guarded by sufficient penalties. When the law has thus afforded to individuals all practicable means of knowing the circumstances which ought to enter into their prudential calculations in dealing with the company, there seems no more need for interfering with individual judgment in this sort of transactions, than in any other part of the private business of life.
The reason usually urged for such interference is, that the managers of an association with limited responsibility, not risking their whole fortunes in the event of loss, while in case of gain they imighti profit largely, are not sufficiently interested in exercising due circumspection, and are under the temptation of exposing the funds of the association to improper hazards. jItkis, however, well ascertainedk that associations with unlimited responsibility, if they have rich shareholders, can obtain, even when known to be reckless in their transactions, improper credit to an extent far exceeding what would be given to companies equally ill-conducted whose creditors had only the subscribed capital to rely on.* To whichever side the balance of evil inclinesj, it is a consideration of more importance to the shareholders themselves than to third parties; since, with proper securities for publicity, the capital of lan association with limited liabilityl could not be engaged in hazards beyond those ordinarily incident to the business it carries on, without the facts being known, and becoming the subject of comments by which the credit of the body would be likely to be affected in quite as great a degree as the circumstances would justify. If, under securities for publicity, it were found in practice that companies, formed on the principle of unlimited responsibility, mwere more skilfully and more cautiously managedm , companies with limited liability would be unable to maintain an equal competition with them; and would therefore rarely be formed, unless when such limitation was the only condition on which the necessary amount of capital could be raised: and in that case it would be very unreasonable to say that their formation ought to be prevented.
It may further be remarked, that although, with equality of capital, a company of limited liability offers a somewhat less security to those who deal with it, than one in which every shareholder is responsible with his whole fortune, yet even the weaker of these two securities is in some respects stronger than that which an individual capitalist can afford. In the case of an individual, there is such security as can be founded on his unlimited liability, but not that derived from publicity of transactions, or from a known and large amount of paid-up capital. This topic is well treated in an able paper by M. Coquelin, published in the Revue des Deux Mondes for July 1843.†
“While third parties who trade with individuals,” says this writer, “scarcely ever know, except by approximation, and even that most vague and uncertain, what is the amount of capital responsible for the performance of contracts made with them, those who trade with a société anonyme can obtain full information if they seek it, and perform their operations with a feeling of confidence that cannot exist in the other case. Again, nothing is easier than for an individual trader to conceal the extent of his engagements, as no one can know it certainly but himself. Even his confidential clerk may be ignorant of it, as the loans he finds himself compelled to make may not all be of a character to require that they be entered in his day-book. It is a secret confined to himself; one which transpires rarely, and always slowly; one which is unveiled only when the catastrophe has occurred. On the contrary, the société anonyme neither can nor ought to borrow, without the fact becoming known to all the world—directors, clerks, shareholders, and the public. Its operations partake in some respects, of the nature of those of governments. The light of day penetrates in every direction, and there can be no secrets from those who seek for information. Thus all is fixed, recorded, known, of the capital and debts in the case of the société anonyme, while all is uncertain and unknown in the case of the individual trader. Which of the two, we would ask the reader, presents the most favourable aspect, or the surest guarantee, to the view of those who trade with them?
“Again, availing himself of the obscurity in which his affairs are shrouded, and which he desires to increase, the private trader is enabled, so long as his business appears prosperous, to produce impressions in regard to his means far exceeding the reality, and thus to establish a credit not justified by those means. When losses occur, and he sees himself threatened with bankruptcy, the world is still ignorant of his condition, and he finds himself enabled to contract debts far beyond the possibility of payment. The fatal day arrives, and the creditors find a debt much greater than had been anticipated, while the means of payment are as much less. Even this is not all. The same obscurity which has served him so well thus far, when desiring to magnify his capital and increase his credit, now affords him the opportunity of placing a part of that capital beyond the reach of his creditors. It becomes diminished, if not annihilated. It hides itself, and not even legal remedies, nor the activity of creditors, can bring it forth from the dark corners in which it is placed. . . . Our readers can readily determine for themselves if practices of this kind are equally easy in the case of the société anonyme. We do not doubt that such things are possible, but we think that they will agree with us that from its nature, its organization, and the necessary publicity that attends all its actions, the liability to such occurrences is very greatly diminished.”
The laws of most countries, England included, have erred in a twofold manner with regard to joint-stock companies. While they have been most unreasonably jealous of allowing such associations to exist, especially with limited responsibility, they have generally neglected the enforcement of publicity; the best security to the public against any danger which might arise from this description of partnerships; and a security quite as much required in the case of those associations of the kind in question, which, by an exception from their general practice, they suffered to exist. Even in the instance of the Bank of England, which holds a monopoly from the legislature, and has had partial control over a matter of so much public interest as the state of the circulating medium, it is only within these few years that any publicity n has been enforced; and the publicity was at first of an extremely incomplete character, though now, for most practical purposes, probably at length sufficient.
§ 7. [Partnerships in commandite] The other kind of limited partnership which demands our attention, is that in which the managing partner or partners are responsible with their whole fortunes for the engagements of the concern, but have others associated with them who contribute only definite sums, and are not liable for anything beyond, though they participate in the profits according to any rule which may be agreed on. This is called partnership en commandite: and the partners with limited liability (to whom, by the French law, all interference in the management of the concern is interdicted) are known by the name commanditaires. Such partnerships are not aalloweda by English law: bin all private partnerships,b whoever shares in the profits is liable for the debts, to as plenary an extent as the managing partner.
For such prohibition no csatisfactoryc defence has ever, so far as I am aware, been made. Even the insufficient reason given against limiting the responsibility of shareholders in a joint-stock company, does not apply here; there being no diminution of the motives to circumspect management, since all who take any part in the direction of the concern are liable with their whole fortunes. To third parties, again, the security is improved by the existence of commandite; since the amount subscribed by commanditaires is all of it available to creditors, the commanditaires losing their whole investment before any creditor can lose anything; while, if instead of becoming partners to that amount, they had lent the sum at an interest equal to the profit they derived from it, they would have shared with the other creditors in the residue of the estate, diminishing pro rata the dividend obtained by all. While the practice of commandite thus conduces to the interest of creditors, it is often highly desirable for the contracting parties themselves. The managers are enabled to obtain the aid of a much greater amount of capital than they could borrow on their own security; and persons are induced to aid useful undertakings, by embarking limited portions of capital in them, when they would not, and often could not prudently, have risked their whole fortunes on the chances of the enterprise.
It may perhaps be thought that where due facilities are afforded to joint-stock companies, commandite partnerships are not required. But there are classes of cases to which the commandite principle must always be better adapted than the joint-stock principle. “Suppose,” says M. Coquelin, “an inventor seeking for a capital to carry his invention into practice. To obtain the aid of capitalists, he must offer them a share of the anticipated benefit; they must associate themselves with him in the chances of its success. In such a case, which of the forms would he select? Not a common partnership, certainly;” for various reasons, and especially dthe extreme difficulty of findingd a partner with capital, willing to risk his whole fortune on the success of ethee invention.* “Neither would he select the société anonyme,” or any other form of joint-stock company, “in which he might be superseded as manager. He would stand, in such an association, on no better footing than any other shareholder, and he might be lost in the crowd; whereas, the association existing, as it were, by and for him, the management would appear to belong to him as a matter of right. Cases occur in which a merchant or a manufacturer, without being precisely an inventor, has undeniable claims to the management of an undertaking, from the possession of qualities peculiarly calculated to promote its success. So great, indeed,” continues M. Coquelin, “is the necessity, in many cases, for the limited partnership, that it is difficult to conceive how we could dispense with or replace it:”[*] and in reference to his own country he is probably in the right.
Where there is so great a readiness as in England, on the part of the public, to form joint-stock associations, even without the encouragement of a limitation of responsibility; commandite partnership, though its prohibition is in principle quite indefensible, cannot be deemed to be, in a merely economical point of view, of the imperative necessity which M. Coquelin ascribes to it. Yet the inconveniences are not small, which arise indirectly from those provisions of the law by which every one who shares in the profits of a concern is subject to the full liabilities of an unlimited partnership. It is impossible to say how many or what useful modes of combination are rendered impracticable by this state of the law. It is sufficient for its condemnation that, unless in some way relaxed, it is inconsistent with f the payment of wages in part by a percentage on profits; in other words, the association of the operatives as virtual partners with the capitalist.†
It is, above all, with reference to the improvement and elevation of the working classes that complete freedom in the conditions of partnership is indispensable. gCombinations such as the associations of workpeople, described in a former chapter,h are the most powerful means of effecting the social emancipation of the labourers through their own moral qualities. Nor is the liberty of associationg important solely for its examples of success, but fully as much so for the sake of attempts which would not succeed; but by their failure would give instruction more impressive than can be afforded by anything short of actual experience. iEveryi theory of social improvement, the worth of which is capable of being brought to an experimental test, should be permitted, and even encouraged, to submit itself to that test. From such experiments the jactive portion ofj the working classes would derive lessons, which they would be slow to learn from the teaching of persons supposed to have interests and prejudices adverse to their good; kwould obtain the means of correcting, at no cost to society,lwhateverl is now erroneous in their notions of the means of establishing their independence; and of discovering the conditions, moral, intellectual, and industrial, which are indispensably necessary for effecting without injustice, or for effecting at all, the social regeneration they aspire tok.*
The French law of partnership is superior to the English in permitting commandite; and superior, in having no such unmanageable instrument as the Court of Chancery, all cases arising from commercial transactions being adjudicated in a comparatively cheap and expeditious manner by a tribunal of merchants. In other respects the French system is far worse than the English. A mjoint-stockm company with limited responsibility cannot be formed without the express authorization of the department of government called the Conseil d’Etat, a body of administrators, generally entire strangers to industrial transactions, who have no interest in promoting enterprises, and are apt to think that the purpose of their institution is to restrain them; whose consent cannot in any case be obtained without an amount of time and labour which is a very serious hindrance to the commencement of an enterprise, while the extreme uncertainty of obtaining that consent at all is a great discouragement to capitalists who would be willing to subscribe. In regard to joint-stock companies without limitation of responsibility, which in England exist in such numbers and are formed with such facility, nthesen associations cannot, in France, exist at all; for, in cases of unlimited partnership, the French law does not permit the division of the capital into transferable shares.
The best existing laws of partnership appear to be those of the New England States. According to Mr. Carey,* “nowhere is association so little trammelled by regulations as in New England; the consequence of which is, that it is carried to a greater extent there, and particularly in Massachusetts and Rhode Island, than in any other part of the world. In these states, the soil is covered with compagnies anonymes—chartered companies—for almost every conceivable purpose. Every town is a corporation for the management of its roads, bridges, and schools: which are, therefore, under the direct control of those who pay for them, and are consequently well managed. Academies and churches, lyceums and libraries, saving-fund societies, and trust companies, exist in numbers proportioned to the wants of the people, and all are corporations. Every district has its local bank, of a size to suit its wants, the stock of which is owned by the small capitalists of the neighbourhood, and managed by themselves; the consequence of which is, that in no part of the world is the system of banking so perfect—so little liable to vibration in the amount of loans—the necessary effect of which is, that in none is the value of property so little affected by changes in the amount or value of the currency resulting from the movements of their own banking institutions. In the two states to which we have particularly referred, they are almost two hundred in number. Massachusetts, alone, offers to our view fifty-three insurance offices, of various forms, scattered through the state, and all incorporated. oFactories are incorporated, and are owned in shareso ; and pevery one that has any part in the managementp of their concerns, from the purchase of the raw material to the sale of the manufactured article, qis a part ownerq ; while every one employed in them has a prospect of becoming one, by the use of prudence, exertion, and economy. Charitable associations exist in large numbers, and all are incorporated. rFishing vessels are owned in sharesr by those who navigate them; and sthe sailors of a whaling ship depends in a great degree, if not altogether, tupon the success of the voyage for their compensationt . Every master of a vessel trading in the Southern Ocean is a part owner, and the interest he possesses is a strong inducement to exertion and economy, by aid of which the people of New England are rapidly driving out the competition of other nations for the trade of that part of the world. Wherever settled, they exhibit the same tendency to combination of action. In New York they are the chief owners of uthe lines of packet shipsu , which vare divided into shares, owned by the shipbuilders, the merchants, the master, and the matesv ; which last generally acquire the means of becoming themselves masters, and to this is due their great success. The system is the most perfectly democratic of any in the world. wIt affords to every labourer, every sailor, every operative, male or female, the prospect of advancementw ; and its results are precisely such as we should have reason to expect. In no part of the world are talent, industry, and prudence, so certain to be largely rewarded.”
x The cases of insolvency and fraud on the part of chartered companies in America, which have caused so much loss and so much scandal in Europe, did not occur in the part of the Union to which this extract refers, but in other States, in which the right of association is much more fettered by legal restrictions, and in which, accordingly, joint-stock associations are not comparable in number or variety to those of New England. Mr. Carey adds, “A careful examination of the systems of the several states, can scarcely, we think, fail to convince the reader of the advantage resulting from permitting men to determine among themselves the terms upon which they will associate, and allowing the associations that may be formed to contract with the public as to the terms upon which they will trade together, whether of the limited or unlimited liability of the partnersy .”[*] This principle has been adopted as the foundation of all recent English legislation on the subjecty.
§ 8. [Laws relating to Insolvency] I proceed to the subject of Insolvency Laws.
Good laws on this subject are important, first and principally, on the score of public morals; which are on no point more under the influence of the law, for good and evil, than in a matter belonging so pre-eminently to the province of law as the preservation of pecuniary integrity. But the subject is also, in a merely economical point of view, of great importance. First, because the economical well-being of a people, and of mankind, depends in an especial manner upon their being able to trust each other’s engagements. Secondly, because one of the risks, or expenses, of industrial operations is the risk or expense of what are commonly called bad debts, and every saving which can be effected in this liability is a diminution of cost of production; by dispensing with an item of outlay which in no way conduces to the desired end, and which must be paid for either by the consumer of the commodity, or from the general profits of capital, according as the burthen is peculiar or general.
The laws and practice of nations on this subject have almost always been in extremes. The ancient laws of most countries awerea all severity to the debtor. They b invested the creditor with a power of coercion, more or less tyrannical, which he might use against his insolvent debtor, either to extort the surrender of hidden property, or to obtain satisfaction of a vindictive character, which might console him for the non-payment of the debt. This arbitrary power has extended, in some countries, to making the insolvent debtor serve the creditor as his slave: in which plan there were cat leastc some grains of common sense, since it might possibly be regarded as a scheme for making him work out the debt by his labour. In England the coercion assumed the milder form of ordinary imprisonment. The one and the other were the barbarous expedients of a rude age, repugnant to justice, as well as to humanity. Unfortunately the reform of them, like that of the criminal law generally, has been taken in hand as an affair of humanity only, not of justice: and the modish humanity of the present time, which is essentially a thing of one idea, d has in this as in other cases, gone into a violent reaction against the ancient severity, and emight almost be supposed to seee in the fact of having lost or squandered other people’s property, a peculiar title to indulgence. Everything in the law which attached disagreeable consequences to that fact, fwasf gradually relaxed, gorg entirely got rid ofh: until the demoralizing effects of this laxity became so evident as to determine, byimore recent legislation, a salutary though very insufficienti movement in the reverse direction.h
The indulgence of the j laws to those who have made themselves unable to pay their just debts, is usually defended, on the plea that the sole object of the law should be, in case of insolvency, not to coerce the person of the debtor, but to get at his property, and distribute it fairly among the creditors. Assuming that this is and ought to be the sole object, kthe mitigation of the law was in the first instance carried so far as to sacrifice that objectk . Imprisonment at the discretion of a creditor was really a powerful engine for extracting from the debtor any property which he had concealed or otherwise made away withl; and it remains to be shown by experience whether, inl depriving creditors of this instrument, the lawm, even as last amended, has furnished them with am sufficient equivalent. n But the doctrine, that the law has done all that ought to be expected from it, when it has put the creditors in o possession of the property of an insolvent, is in itself a totally inadmissible piece of spurious humanity. It is the business of law to prevent wrong-doing, and not simply to patch up the consequences of it when it has been committed. The law is bound to take care that insolvency shall not be a good pecuniary speculation; that men shall not have the privilege of hazarding other people’s property without their knowledge or consent, taking the profits of the enterprise if it is successful, and if it fails throwing the loss upon the prightfulp owners; qandq that they shall not find it answer to make themselves unable to pay their just debts, by spending the money of their creditors in personal indulgence. rIt is admittedr that what is technically called fraudulent bankruptcy, the false pretence of inability to pay, siss , when detected, tproperlyt subject to punishment. But does it follow that insolvency is not the consequence of misconduct because the inability to pay may be real? If a man has been a spendthrift, or a gambler, with property on which his creditors had a prior claim, shall he pass scot-free because the mischief is consummated and the money gone? Is there any very material difference uin point of moralityu between this conduct, and those other kinds of dishonesty which go by the names of fraud and embezzlement?
Such cases are not a minority, but a large majority among insolvencies. The statistics of bankruptcy prove the fact. “By far the greater part of all insolvencies arise from notorious misconduct; the proceedings of the Insolvent Debtors Court and of the Bankruptcy Court will prove it. Excessive and unjustifiable overtrading, or most absurd speculation in commodities, merely because the poor speculator ‘thought they would get up,’ but why he thought so he cannot tell; vspeculationv in hops, in tea, in silk, in corn—things with which he is altogether unacquainted; wild and absurd investments in foreign funds, or in joint-stocks; these are among the most innocent causes of bankruptcy.”* The experienced and intelligent writer from whom I quote, corroborates his assertion by the testimony of several of the official assignees of the Bankruptcy Court. One of them says, “As far as I can collect from the books and documents furnished by the bankrupts, it seems to me that” in the whole number of cases which occurred during a given time in the court to which he was attached, “fourteen have been ruined by speculations in things with which they were unacquainted; three by wneglectingw book-keeping; ten by trading beyond their capital and means, and the consequent loss and expense of accommodation-bills; forty-nine by expending more than they could reasonably hope their profits would be, though their business yielded a fair return; none by any general distress, or the falling off of any particular branch of trade.” Another of these officers says xthat, during a period of eighteen months, “x fifty-two cases of bankruptcy have come under my care. It is my opinion that thirty-two of these have arisen from an imprudent expenditure, and five partly from that cause, and partly from a pressure on the business in which the bankrupts were employed. Fifteen I attribute to improvident speculations, combined in many instances with an extravagant mode of life.”
To these citations the author adds the following statements from his personal means of knowledgey . “Many insolvencies are produced by tradesmen’s indolence; they keep no books, or at least imperfect ones, which they never balance; they never take stock; they employ servants, if their trade be extensive, whom they are too indolent even to supervise, and then become insolvent. It is not too much to say, that one-half of all the persons engaged in trade, even in London, never take stock at all: they go on year after year without knowing how their affairs stand, and at last, like the child at school, they find to their surprise, but one halfpenny left in their pocket. I will venture to say that not one-fourth of all the persons in the provinces, either manufacturers, tradesmen, or farmers, ever take stock; nor in fact does one-half of them ever keep account-books, deserving any other name than memorandum books. I know sufficient of the concerns of five hundred small tradesmen in the provinces, to be enabled to say, that not one-fifth of them ever take stock, or keep even the most ordinary accounts. I am prepared to say of such tradesmen, from carefully prepared tables, giving every advantage where there has been any doubt as to the causes of their insolvency, that where nine happen from extravagance or dishonesty, one” at most “may be referred to misfortune alone.”*
Is it rational to expect among the trading classes any high sense of justice, honour, or integrity, zifz the law enables men who act in this manner to shuffle off the consequences of their misconduct upon those who have been so unfortunate as to trust them; and practically proclaims that it looks upon insolvency thus produced, as a “misfortune,” not an offence?
It is, of course, not denied, that insolvencies do arise from causes beyond the control of the debtor, and that, in many more cases, his culpability is not of a high order; and the law ought to make a distinction in favour of such cases, but not without a searching investigation; nor should the case ever be let go without having ascertained, in the most complete manner practicable, not the fact of insolvency only, but the cause of it. To have been trusted with money or money’s worth, and to have lost or spent it, is primâ facie evidence of something wrong: and it is not for the creditor to prove, which he cannot do in one case out of ten, that there has been criminality, but for the debtor to rebut the presumption, by laying open the whole state of his affairs, and showing either that there has been no misconduct, or that the misconduct has been of an excusable kind. If he fail in this, he ought never to be dismissed without a punishment proportioned to the degree of blame which seems justly imputable to him; which punishment, however, might be shortened or mitigated in proportion as he appeared likely to exert himself in repairing the injury done.
It is a common argument with those who approve a relaxed system of insolvency laws, that credit, except in the great operations of commerce, is an evil; and that to deprive creditors of legal redress is a judicious means of preventing credit from being given. That which is given by retail dealers to unproductive consumers is, no doubt, to the excess to which it is carried, a considerable evil. This, however, is only true of large, and especially of long, credits; for there is credit whenever goods are not paid for before they quit the shop, or, at least, the custody of the seller; and there would be much inconvenience in putting an end to this sort of credit. But a large proportion of the debts on which insolvency laws take effect, are those due by small tradesmen to the dealers who supply them: and on no class of debts does the demoralization occasioned by aa bada state of the law, operate more perniciously. These are commercial credits, which no one wishes to see curtailed; their existence is of great importance to the general industry of the country, and to numbers of honest, well-conducted persons of small means, to whom it would be a bgreatb injury that they should be prevented from obtaining the accommodation they need, and would not abuse, through the omission of the law to provide just remedies against dishonest or reckless borrowers.
But though it were granted that retail transactions, on any footing but that of ready money payment, are an evil, and their entire suppression a fit object for legislation to aim at; a worse mode of compassing that object could scarcely be invented, than to permit those who have been trusted by others to cheat and rob them with impunity. The law does not cgenerallyc select the vices of mankind as the appropriate instrument for inflicting chastisement on the comparatively innocentd. Whend it seeks to discourage any course of action, it does so by applying inducements of its own, not by outlawing those who act in the manner it deems objectionable, and letting loose the predatory instincts of the worthless part of mankind to feed upon them. If a man has committed murder, the law econdemnse him to death; but it does not promise impunity to anybody who may kill him for the sake of taking his purse. The offence of believing another’s word, even rashly, is not so heinous that for the sake of discouraging it, the spectacle should be brought home to every door, of triumphant rascality, with the law on its side, mocking the victims it has made. This pestilent example fhas beenf very widely exhibited since the relaxation of the insolvency laws. It is idle to expect that, even by absolutely depriving creditors of all legal redress, the kind of credit which is considered objectionable would really be very much checked. Rogues and swindlers are still an exception among mankind, and people will go on trusting each other’s promises. Large dealers, in abundant business, would refuse credit, as many of them already do: but in the eager competition of a great town, gor the dependent position of a village shopkeeper,g what can be expected from the tradesman to whom a single customer is of importance, the beginner, perhaps, who is striving to get into business? He will take the risk, even if it were still greater; he is ruined if he cannot sell his goods, and he can but be ruined if he is defrauded. Nor does it avail to say, that he ought to make proper inquiries, and ascertain the character of those to whom he supplies goods on trust. In some of the most flagrant cases of profligate debtors which have come before the Bankruptcy Court, the swindler had been able to give, and had given, excellent references.*
Of Interferences of Government Grounded on Erroneous Theories
§ 1. [Doctrine of Protection to Native Industry] From the necessary functions of government, and the effects produced on the economical interests of society by their good or ill discharge, we proceed to the functions which belong to what I have termeda, for want of a better designation,a the optional class; those which are sometimes assumed by governments and sometimes not, and which it is not unanimously admitted that they ought to exercise.
Before entering on the general principles of the question, it will be advisable to clear from our path all those cases, in which government interference works ill because grounded on false views of the subject interfered with. Such cases have no connexion with any theory respecting the proper limits of interference. There are some things with which governments ought not to meddle, and other things with which they ought; but whether right or wrong in itself, the interference must work for ill, if government, not understanding the subject which it meddles with, meddles to bring about a result which would be mischievous. We will therefore begin by passing in review various false theories, which have from time to time formed the ground of acts of government more or less economically injurious.
Former writers on political economy have found it needful to devote much trouble and space to this department of their subject. It has now happily become possible, at least in our own country, greatly to abridge this purely negative part of our discussions. The false theories of political economy which have done so much mischief in times past, are entirely discredited among all who have not lagged behind the general progress of opinion; and few of the enactments which were once grounded on those theories still help to deform the statute-book. As the principles on which their condemnation rests have been fully set forth in other parts of this Treatise, we may here content ourselves with a few brief indications.
Of these false theories, the most notable is the doctrine of Protection to Native Industry; a phrase meaning the prohibition, or the discouragement by heavy duties, of such foreign commodities as are capable of being produced at home. If the theory involved in this system had been correct, the practical conclusions grounded on it would not have been unreasonable. The theory was, that to buy things produced at home was a national benefit, and the introduction of foreign commodities generally a national loss. It being at the same time evident that the interest of the consumer is to buy foreign commodities in preference to domestic whenever they are either cheaper or better, the interest of the consumer appeared in this respect to be contrary to the public interest; he was certain, if left to his own inclinations, to do what according to the theory was injurious to the public.
It was shown, however, in our analysis of the effects of international trade, as it had been often shown by former writers, that the importation of foreign commodities, in the common course of traffic, never takes place, except when it is, economically speaking, a national good, by causing the same amount of commodities to be obtained at a smaller cost of labour and capital to the country. To prohibit, therefore, this importation, or impose duties which prevent it, is to render the labour and capital of the country less efficient in production than they would otherwise be; and compel a waste, of the difference between the labour and capital necessary for the home production of the commodity, and that which is required for producing the things with which it can be purchased from abroad. The amount of national loss thus occasioned is measured by the excess of the price at which the commodity is produced over that at which it could be imported. In the case of manufactured goods, the whole difference between the two prices is absorbed in indemnifying the producers for waste of labour, or of the capital which supports that labour. Those who are supposed to be benefited, namely, the makers of the protected articles, (unless they form an exclusive company, and have a monopoly against their own countrymen as well as against foreigners,) do not obtain higher profits than other people. All is sheer loss, to the country as well as to the consumer. When the protected article is a product of agriculture—the waste of labour not being incurred on the whole produce, but only on what may be called the last instalment of it—the extra price is only in part an indemnity for waste, the remainder being a tax paid to the landlords.
The restrictive and prohibitory policy was originally grounded on what is called the Mercantile System, which representing the advantage of foreign trade to consist solely in bringing money into the country, gave artificial encouragement to exportation of goods, and discountenanced their importation. The only exceptions to the system were those required by the system itself. The materials and instruments of production were the subjects of a contrary policy, directed however to the same end; they were freely imported, and not permitted to be exported, in order that manufacturers, being more cheaply supplied with the requisites of manufacture, might be able to sell cheaper, and therefore to export more largely. For a similar reason, importation was ballowedb and even favoured, when confined to the productions of countries which were supposed to take from cthe countryc still more than ditd took from them, thus enriching eite by a favourable balance of trade. As part of the same system, colonies were founded, for the supposed advantage of compelling them to buy our commodities, or at all events not to buy those of any other country: in return for which restriction, we were generally willing to come under an equivalent obligation with respect to the staple productions of the colonists. The consequences of the theory were pushed so far, that it was not unusual even to give bounties on exportation, and induce foreigners to buy from us rather than from other countries, by a cheapness which we artificially produced, by paying part of the price for them out of our own taxes. This is a stretch beyond the point yet reached by any private tradesman in his competition for business. No shopkeeper, I should think, ever made a practice of bribing customers by selling goods to them at a permanent loss, making it up to himself from other funds in his possession.
The principle of the Mercantile Theory is now given up even by writers and governments who still cling to the restrictive system. Whatever hold that system has over men’s minds, independently of the private interests f exposed to real or apprehended loss by its abandonment, is derived from fallacies other than the old notion of the benefits of heaping up money in the country. The most effective of these is the specious plea of employing our own countrymen and our national industry, instead of feeding and supporting the industry of foreigners. The answer to this, from the principles laid down in former chapters, is evident. Without reverting to the fundamental theorem discussed in an early part of the present treatise,* respecting the nature and sources of employment for labour, it is sufficient to say, what has usually been said by the advocates of free trade, that the alternative is not between employing our own gpeopleg and foreigners, but between employing one class and another of our own hpeopleh . The imported commodity is always paid for, directly or indirectly, with the produce of our own industry: that industry being, at the same time rendered more productive, since, with the same labour and outlay, we are enabled to possess ourselves of a greater quantity of the article. Those who have not well considered the subject are apt to suppose that our exporting an equivalent in our own produce, for the foreign articles we consume, depends on contingencies—on the consent of foreign countries to make some corresponding relaxation of their own restrictions, or on the question whether those from whom we buy are induced by that circumstance to buy more from us; and that, if these things, or things equivalent to them, do not happen, the payment must be made in money. Now, in the first place, there is nothing more objectionable in a money payment than in payment by any other medium, if the state of the market makes it the most advantageous remittance; and the money itself was first acquired, and would again be replenished, by the export of an equivalent value of our own products. But, in the next place, a very short interval of paying in money would so lower prices as either to stop a part of the importation, or raise up a foreign demand for our produce, sufficient to pay for the imports. I grant that this disturbance of the equation of international demand would be in some degree to our disadvantage, in the purchase of other imported articles; and that a country which prohibits some foreign commodities, does, cæteris paribus, obtain those which it does not prohibit, at a less price than it would otherwise have to pay. To express the same thing in other words; a country which destroys or prevents altogether certain branches of foreign trade, thereby annihilating a general gain to the world, which would be shared in some proportion between itself and other countries—does, in some circumstances, draw to itself, at the expense of foreigners, a larger share than would else belong to it of the gain arising from that portion of its foreign trade which it suffers to subsist. But even this it can only be enabled to do, if foreigners do not maintain equivalent prohibitions or restrictions against its commodities. In any case, the justice or expediency of destroying one of two gains, in order to engross a rather larger share of the other, does not require much discussion: the gain, too, which is destroyed, being, in proportion to the magnitude of the transactions, the larger of the two, since it is the one which capital, left to itself, is supposed to seek by preference.
Defeated as a general theory, the Protectionist doctrine finds support in some particular cases, from considerations which, when really in point, involve greater interests than mere saving of labour; the interests of national subsistence and of national defence. The discussions on the Corn Laws have familiarized everybody with the plea, that we ought to be independent of foreigners for the food of the people; and the Navigation Laws iwerei grounded, in theory and profession, on the necessity of keeping up a “nursery of seamen” for the navy. On this last subject I at once admit, that the object is worth the sacrifice; and that a country exposed to invasion by sea, if it cannot otherwise have sufficient ships and sailors of its own to secure the means of manning on an emergency an adequate fleet, is quite right in obtaining those means, even at janj economical sacrifice in point of cheapness of transport. When the English Navigation Laws were enacted, the Dutch, from their maritime skill and their low rate of profit at home, were able to carry for other nations, England included, at cheaper rates than those nations could carry for themselves: which placed all other countries at a great comparative disadvantage in obtaining experienced seamen for their ships of war. The Navigation Laws, by which this deficiency was remedied, and at the same time a blow struck against the maritime power of a nation with which England was then frequently engaged in hostilities, were probably, though economically disadvantageous, politically expedient. But English ships and sailors can now navigate as cheaply as those of any other country; maintaining at least an equal competition with the other maritime nations even in their own trade. The ends which may once have justified Navigation Laws, require them no longer, and kaffordedk no reason for maintaining this invidious exception to the general rule of free trade.
With regard to subsistence, the plea of the Protectionists has been so often and so triumphantly met, that it requires little notice here. That country is the most steadily as well as the most abundantly supplied with food, which draws its supplies from the largest surface. It is ridiculous to found a general system of policy on so limprobablel a danger as that of being at war with all the nations of the world at once; or to suppose that, even if inferior at sea, a whole country could be blockaded like a town, or that the growers of food in other countries would not be as anxious not to lose an advantageous market, as we should be not to be deprived of their corn. On the subject, however, of subsistence, there is one point which deserves more mespecialm consideration. In cases of actual or apprehended scarcity, many countries of Europe are accustomed to stop the exportation of food. Is this, or not, sound policy? There can be no doubt that in the present state of international morality, a people cannot, any more than an individual, be blamed for not starving itself to feed others. But if the greatest amount of good to mankind on the whole, were the end aimed at in the maxims of international conduct, such collective churlishness would certainly be condemned by them. Suppose that in ordinary circumstances the trade in food were perfectly free, so that the price in one country could not habitually exceed that in any other by more than the cost of carriage, together with a moderate profit to the importer. A general scarcity ensues, affecting all countries, but in unequal degrees. If the price rose in one country more than in others, it would be a proof that in that country the scarcity was severest, and that by permitting food to go freely thither from any other country, it would be spared from a less urgent necessity to relieve a greater. When the interests, therefore, of all countries are considered, free exportation is desirable. To the exporting country considered separately, it may, at least on the particular occasion, be an inconvenience: but taking into account that the country which is now the giver, will in some future season be the receiver, and the one that is benefited by the freedom, I cannot but think that even to the apprehension of food rioters it might be made apparent, that in such cases they should do to others what they would wish done to themselves.
In countries in which the nProtection theoryn is declining, but not yet o given up, such as the United States, a doctrine has come into notice which is a sort of compromise between free trade and restriction, namely, that protection for protection’s sake is improper, but that there is nothing objectionable in having as much protection as may incidentally result from a tariff framed solely for revenue. Even in England, regret is sometimes expressed that a “moderate fixed duty” was not preserved on corn, on account of the revenue it would yield. Independently, however, of the general impolicy of taxes on the necessaries of life, this doctrine overlooks the fact, that revenue is received only on the quantity imported, but that the tax is paid on the entire quantity consumed. To make the public pay much that the treasury may receive a little, is pnot anp eligible mode of obtaining a revenue. In the case of manufactured articles the doctrine involves a palpable inconsistency. The object of the duty as a means of revenue, is inconsistent with its affording, even incidentally, any protection. It can only operate as protection in so far as it prevents importation; and to whatever degree it prevents importation, it affords no revenue.
The only case in which, on mere principles of political economy, protecting duties can be defensible, is when they are imposed temporarily (especially in a young and rising nation) in hopes of naturalizing a foreign industry, in itself perfectly suitable to the circumstances of the country. The superiority of one country over another in a branch of production, often arises only from having begun it sooner. There may be no inherent advantage on one part, or disadvantage on the other, but only a present superiority of acquired skill and experience. A country which has this skill and experience yet to acquire, may in other respects be better adapted to the production than those which were earlier in the field: and besides, it is a just remark qof Mr. Raeq , that nothing has a greater tendency to promote improvements in any branch of production, than its trial under a new set of conditions. But it cannot be expected that individuals should, at their own risk, or rather to their certain loss, introduce a new manufacture, and bear the burthen of carrying it on until the producers have been educated up to the level of those with whom the processes are traditional. A protecting duty, continued for a reasonable time, rmightr sometimes be the least inconvenient mode in which the nation can tax itself for the support of such an experiment. But sit is essential thats the protection should be confined to cases in which there is good ground of assurance that the industry which it fosters will after a time be able to dispense with it; nor should the domestic producers ever be allowed to expect that it will be continued to them beyond the time t necessary for a fair trial of what they are capable of accomplishing.
uThe only writer, of any reputation as a political economist, who now adheres to the Protectionist doctrine, Mr. H. C. Carey, rests its defence, in an economic point of view, principally on two reasons. One is, the great saving in cost of carriage, consequent on producing commodities at or very near to the place where they are to be consumed. The whole of the cost of carriage, both on the commodities imported and on those exported in exchange for them, he regards as a direct burthen on the producers, and not, as is obviously the truth, on the consumers. On whomsoever it falls, it is, without doubt, a burthen on the industry of the world. But it is obvious (and that Mr. Carey does not see it, is one of the many surprising things in his book) that the burthen is only borne for a more than equivalent advantage. If the commodity is bought in a foreign country with domestic produce in spite of the double cost of carriage, the fact proves that, heavy as that cost may be, the saving in cost of production outweighs it, and the collective labour of the country is on the whole better remunerated than if the article were produced at home. Cost of carriage is a natural protecting duty, which free trade has no power to abrogate: and unless America gained more by obtaining her manufactures through the medium of her corn and cotton than she loses in cost of carriage, the capital employed in producing corn and cotton in annually increased quantities for the foreign market, would turn to manufactures instead. The naturalvadvantagesv attending a mode of industry in which there is less cost of carriage to pay, can at most be only a justification for a temporary and merely tentative protection. The expenses of production being always greatest at first, it may happen that the home production, though really the most advantageous, may not become so until after a certain duration of pecuniary loss, which it is not to be expected that private speculators should incur in order that their successors may be benefited by their ruin. I have therefore conceded that in a new country a temporary protecting duty may sometimes be economically defensible; on condition, however, that it be strictly limited in point of time, and provision be made that during the latter part of its existence it be on a gradually decreasing scale. Such temporary protection is of the same nature as a patent, and should be governed by similar conditions.
The remaining argument of Mr. Carey in support of the economic benefits of Protectionism, applies only to countries whose exports consist of agricultural produce. He argues, that by a trade of this description they actually send away their soil: the distant consumers not giving back to the land of the country, as home consumers would do, the fertilizing elements which they abstract from it. This argument deserves attention on account of the physical truth on which it is founded; a truth which has only lately come to be understood, but which is henceforth destined to be a permanent element in the thoughts of statesmen, as it must always have been in the destinies of nations. To the question of Protectionism, however, it is irrelevant. That the immense growth of raw produce in America to be consumed in Europe, is progressively exhausting the soil of the Eastern, and even of the older Western States, and that both are already far less productive than formerly, is credible in itself, even if no one bore witness to it. But what I have already said respecting cost of carriage, is true also of the cost of manuring. Free trade does not compel America to export corn: she would cease to do so if it ceased to be to her advantage. As, then, she would not persist in exporting raw produce and importing manufactures, any longer than the labour she saved by doing so exceeded what the carriage cost her, so when it became necessary for her to replace in the soil the elements of fertility which she had sent away, if the saving in cost of production were more than equivalent to the cost of carriage and of manure together, manure would be imported; and if not, the export of corn would cease. It is evident that one of these two things would already have taken place, if there had not been near at hand a constant succession of new soils, not yet exhausted of their fertility, the cultivation of which enables her, whether judiciously or not, to postpone the question of manure. As soon as it no longer answers better to break up new soils than to manure the old, America will either become a regular importer of manure, or will, without protecting duties, grow corn for herself only, and manufacturing for herself, will make her manure, as Mr. Carey desires, at home.*
For these obvious reasons, I hold Mr. Carey’s economic arguments for Protectionism to be totally invalid. The economic, however, is far from being the strongest point of his case. American Protectionists often reason extremely ill; but it is an injustice to them to suppose that their Protectionist creed rests upon nothing superior to an economic blunder. Many of them have been led to it, much more by consideration for the higher interests of humanity, than by purely economic reasons. They, and Mr. Carey at their head, deem it a necessary condition of human improvement that towns should abound; that men should combine their labour, by means of interchange—with near neighbours, with people of pursuits, capacities, and mental cultivation different from their own, sufficiently close at hand for mutual sharpening of wits and enlarging of ideas—rather than with people on the opposite side of the globe. They believe that a nation all engaged in the same, or nearly the same, pursuit—a nation all agricultural—cannot attain a high state of civilization and culture. And for this there is a great foundation of reason. If the difficulty can be overcome, the United States, with their free institutions, their universal schooling, and their omnipresent press, are the people to do it; but whether this is possible or not is still a problem. So far, however, as it is an object to check the excessive dispersion of the population, Mr. Wakefield has pointed out a better way; to modify the existing method of disposing of the unoccupied lands, by raising the price, instead of lowering it, or giving away the land gratuitously, as is largely done since the passing of the Homestead Act. To cut the knot in Mr. Carey’s fashion, by Protectionism, it would be necessary that Ohio and Michigan should be protected against Massachusetts as well as against England: for the manufactories of New England, no more than those of the old country, accomplish his desideratum of bringing a manufacturing population to the doors of the Western farmer. Boston and New York do not supply the want of local towns to the Western prairies, any better than Manchester; and it is as difficult to get back the manure from the one place as from the other.u
There is only one part of the Protectionist scheme which requires any further notice: its policy towards colonies, and foreign dependencies; that of compelling them to trade exclusively with the dominant country. A country which thus secures to itself an extra foreign demand for its commodities, undoubtedly gives itself some advantage in the distribution of the general gains of the commercial world. Since, however, it causes the industry and capital of the colony to be diverted from channels, which are proved to be the most productive, inasmuch as they are those into which industry and capital spontaneously tend to flow; there is a loss, on the whole, to the productive powers of the world, and the mother country does not gain so much as she makes the colony lose. If, therefore, the mother country refuses to acknowledge any reciprocity of obligation, she imposes a tribute on the colony in an indirect mode, greatly more oppressive and injurious than the direct. But if, with a more equitable spirit, she submits herself to corresponding restrictions for the benefit of the colony, the result of the whole transaction is the ridiculous one, that each party loses much, in order that the other may gain a little.
§ 2. [Usury Laws] Next to the system of Protection, among mischievous interferences with the spontaneous course of industrial transactions, may be noticed certain interferences with contracts. One instance is that of the Usury Laws. These originated in a religious prejudice against receiving interest on money, derived from that fruitful source of mischief in modern Europe, the attempted adaptation to Christianity of doctrines and precepts drawn from the Jewish law. In Mahomedan nations the receiving of interest is formally interdicted, and rigidly abstained from: and Sismondi has noticed, as one among the causes of the industrial inferiority of the Catholic, compared with the Protestant parts of Europe, that the Catholic Church in the middle ages gave its sanction to the same prejudice; which subsists, impaired but not destroyed, wherever that religion is acknowledged. Where law or conscientious scruples prevent lending at interest, the capital which belongs to persons not in business is lost to productive purposes, or can be applied to them only in peculiar circumstances of personal connexion, or by a subterfuge. Industry is thus limited to the capital of the undertakers, and to what they can borrow from persons not bound by the same laws or religion as themselves. In Mussulman countries the bankers and money dealers are either Hindoos, Armenians, or Jews.
In more improved countries, legislation no longer discountenances the receipt of an equivalent for money lent; but it ahas everywhere interfereda with the free agency of the lender and borrowers, by fixing a legal limit to the rate of interest, and making the receipt of more than the appointed maximum a penal offence. This restriction, though approved by Adam Smith, has been condemned by all enlightened persons since the triumphant onslaught made upon it by Bentham in his “Letters on Usury,” which may still be referred to as the best extant writing on the subject.
Legislators may enact and maintain Usury Laws from one of two motives: ideas of public policy, or concern for the interest of the parties binb the contract; in this case, of one party only, the borrower. As a matter of policy, the notion may possibly be, that it is for the general good that interest should be low. c It is dhoweverd a misapprehension of the causes which influence commercial transactions, to suppose that the rate of interest is really made lower by law, than it would be made by the spontaneous play of supply and demand. If the competition of borrowers, left unrestrained, would raise the rate of interest to six per cent, this proves that at five there would be a greater demand for loans, than there is capital in the market to supply. If the law in these circumstances permits no interest beyond five per cent, there will be some lenders, who not choosing to disobey the law, and not being in a condition to employ their capital otherwise, will content themselves with the legal rate: but others, finding that in a season of pressing demand, more may be made of their capital by other means than they are permitted to make by lending it, will not lend it at all; and the loanable capital, already too small for the demand, will be still further diminished. Of the disappointed candidates there will be many at such periods, who must have their necessities supplied at any price, and these will readily find a third section of lenders, who will not be averse to join in a violation of the law, either by circuitous transactions partaking of the nature of fraud, or by relying on the honour of the borrower. The extra expense of the roundabout mode of proceeding, and an equivalent for the risk of nonpayment and of legal penalties, must be paid by the borrower, over and above the extra interest which would e have been required of him by the general state of the market. The laws which were intended to lower the price paid by him for pecuniary accommodation, end thus in greatly increasing it. These laws have also a directly demoralizing tendency. Knowing the difficulty of detecting an illegal pecuniary transaction between two persons, in which no third person is involved, so long as it is the interest of both to keep the secret, legislators have adopted the expedient of tempting the borrower to become the informer, by making the annulment of the debt a part of the penalty for the offence; thus rewarding men for ffirstf obtaining the property of others by false promises, and then not only refusing payment, but invoking legal penalties on those who have helped them in their need. The moral sense of mankind very rightly infamizes those who resist an otherwise just claim on the ground of usury, and tolerates such a plea only when resorted to as the best legal defence available against an attempt really considered as partaking of fraud or extortion. But this very severity of public opinion renders the enforcement of the laws so difficult, and the infliction of the penalties so rare, that when it does occur it merely victimizes an individual, and has no effect on general practice.
In so far as the motive of the restriction may be supposed to be, not public policy, but regard for the interest of the borrower, it would be difficult to point out any case in which such tenderness on the legislator’s part is more misplaced. A person of sane mind, and of the age at which persons are legally competent to conduct their own concerns, must be presumed to be a sufficient guardian of his pecuniary interests. If he may sell an estate, or grant a release, or assign away all his property, without control from the law, it seems very unnecessary that the only bargain which he cannot make without its intermeddling, should be a loan of money. The law seems to presume that the money-lender, dealing with necessitous persons, can take advantage of their necessities, and exact conditions limited only by his own pleasure. It might be so if there were only one money-lender within reach. But when there is the whole monied capital of a wealthy community to resort to, no borrower is placed under any disadvantage in the market merely by the urgency of his need. If he cannot borrow at the interest paid by other people, it must be because he cannot give such good security: and competition will limit the extra demand to a fair equivalent for the risk of his proving insolvent. Though the law intends favour to the borrower, it is to him above all that injustice is, in this case, done by it. What can be more unjust than that a person who cannot give perfectly good security, should be prevented from borrowing of persons who are willing to lend money to him, by their not being permitted to receive the rate of interest which would be a just equivalent for their risk? Through the mistaken kindness of the law, he must either go without the money which is perhaps necessary to save him from much greater losses, or be driven to expedients of a far more ruinous description, which the law either has not found it possible, or has not happened, to interdict.
Adam Smith rather hastily expressed the opinion, that only two kinds of persons, “prodigals and projectors,”[*] could require to borrow money at more than the market rate of interest. He should have included all persons who are in any pecuniary difficulties, however temporary their necessities may be. It may happen to any person in business, to be disappointed of the resources on which he had calculated for meeting some engagement, the non-fulfilment of which on a fixed day would be bankruptcy. In periods of commercial difficulty, this is the condition of many prosperous mercantile firms, who become competitors for the small amount of disposable capital which, in a time of general distrust, the owners are willing to part with. gUnder the English usury laws, now happily abolishedg , the limitations imposed by those laws were felt as a most serious aggravation of every commercial crisis. Merchants who could have obtained the aid they required at an interest of seven or eight per cent for short periods, were obliged to give 20 or 30 hper centh , or to resort to forced sales of goods at a still greater loss. Experience having obtruded these evils on the notice of Parliament, the sort of compromise took place, of which English legislation affords so many instances, and which helps to make our laws and policy the mass of inconsistency that they are. iThe law was reformedi as a person reforms a tight shoe, who cuts a hole in it where it pinches hardest, and continues to wear it. Retaining the erroneous principle as a general rule, Parliament allowed an exception in the case in which the practical mischief was most flagrant. It left the usury laws unrepealed, but exempted bills of exchange, of not more than three months date, from their operation. Some years afterwards the laws were repealed in regard to all other contracts, but left in force as to all those which relate to land. Not a particle of reason could be given for making this extraordinary distinction: but the “agricultural mind” was of opinion that the interest on mortgages, though it hardly ever jcamej up to the permitted point, would come up to a still higher point; and the kusuryk laws lwerel maintained that the landlords mmightm as they nthoughtn , be enabled to borrow below the market rate, as the corn-laws were o kept up that the same class might be able to sell corn above the market rate. The modesty of the pretension pwasp quite worthy of the intelligence which qcouldq think that the end aimed at rwasr in any way forwarded by the means used.
With regard to the “prodigals and projectors” spoken of by Adam Smith; no law can prevent a prodigal from ruining himself, unless it lays him or his property under actual restraint, saccording to the unjustifiable practice of the Roman Law and some of the Continental systems founded on its . The only effect of usury laws upon a prodigal, is to make his ruin rather more expeditious, by driving him to a disreputable class of money-dealers, and rendering the conditions more onerous by the extra risk created by the law. As for projectors, t(a term, in its unfavourable sense, rather unfairly applied to every person who has a project)t ; such laws may put a veto upon the prosecution of the most promising enterprise, when planned, as it generally is, by a person who does not possess capital adequate to its successful completion. Many of the greatest improvements were at first looked shyly on by capitalists, and had to wait long before they found one sufficiently adventurous to be the first in a new path: many years elapsed before Stephenson could convince even the enterprising mercantile public of Liverpool and Manchester, of the advantage of substituting railways for turnpike roads; and plans on which great labour and large sums have been expended with little visible result, (the epoch in their progress when predictions of failure are u most rife,) may be indefinitely suspended, or altogether dropped, and the outlay all lost, if, when the original funds are exhausted, the law will not allow more to be raised on the terms on which people are willing to expose it to the chances of an enterprise not yet secure of success.
§ 3. [Attempts to regulate the prices of commodities] Loans are not the only kind of contract, of which governments have thought themselves qualified to regulate the conditions better than the persons interested. There is scarcely any commodity which they have not, at some place or time, endeavoured to make either dearer or cheaper than it would be if left to itself. The most plausible case for artificially cheapening a commodity, is that of food. The desirableness of the object is in this case undeniable. But since the average price of food, like that of other things, conforms to the cost of production, with the addition of the usual profit; if this price is not expected by the farmer, he will, unless compelled by law, produce no more than he requires for his own consumption: and the law, therefore, if absolutely determined to have food cheaper, must substitute, for the ordinary motives to cultivation, a system of penalties. If it shrinks from doing this, it has no resource but that of taxing the whole nation, to give a bounty or premium to the grower or importer of corn, thus giving everybody cheap bread at the expense of all: in reality a largess to those who do not pay taxes, at the expense of those who do; one of the a forms of a practice essentially bad, that of converting the working classes into unworking classes by making them a present of subsistence.
It is not however so much the general or average price of food, as its occasional high price in times of emergency, which governments have studied to reduce. In some cases, as for example the famous “maximum” of the revolutionary government of 1793, the compulsory regulation was an attempt by the ruling powers to counteract the necessary consequences of their own acts; to scatter an indefinite abundance of the circulating medium with one hand, and keep down prices with the other; a thing manifestly impossible under any régime except one of unmitigated terror. In case of actual scarcity, governments are often urged, as they were in the Irish emergency of 1847, to take measures of some sort for moderating the price of food. But the price of a thing cannot be raised by deficiency of supply, beyond what is sufficient to make a corresponding reduction of the consumption; and if a government prevents this reduction from being brought about by a rise of price, there remains no mode of effecting it unless by taking possession of all the food, and serving it out in rations, as in a besieged town. In a real scarcity, nothing can afford general relief, except a determination by the richer classes to diminish their own consumption. If they buy and consume their usual quantity of food, and content themselves with giving money, they do no good. The price is forced up until the poorest competitors have no longer the means of competing, and the privation of food is thrown exclusively upon the indigent, the other classes being only affected pecuniarily. When the supply is insufficient, somebody must consume less, and if every rich person is determined not to be that somebody, all they do by subsidizing their poorer competitors is to force up the price so much the higher, with no effect but to enrich the corn-dealers, the very reverse of what is desired by those who recommend such measures. All that governments can do in these emergencies, is to counsel a general moderation in consumption, and to interdict such kinds of it as are not of primary importance. Direct measures at the cost of the state, to procure food from a distance, are expedient when from peculiar reasons the thing is not likely to be done by private speculation. In any other case they are a great error. Private speculators will not, in such cases, venture to compete with the government; and though a government can do more than any one merchant, it cannot do nearly so much as all merchants.
§ 4. [Monopolies] Governments, however, are oftener chargeable with having attempted, a too successfully, to make things dear, than with having aimed by wrong means at making them cheap. The usual instrument for producing artificial dearness is monopoly. To confer a monopoly upon a producer or dealer, or upon a set of producers or dealers bnot toob numerous to combine, is to give them the power of levying any amount of taxation on the public, for their individual benefit, which will not make the public forego the use of the commodity. When the sharers in the monopoly are so numerous and so widely scattered that they are prevented from combining, the evil is considerably less: but even then the competition is not so active among a limited as among an unlimited number. Those who feel assured of a fair average proportion in the general business, are seldom eager to get a larger share by foregoing a portion of their profits. A limitation of competition, however partial, may have mischievous effects quite disproportioned to the apparent cause. The mere exclusion of foreigners, from a branch of industry open to the free competition of every native, has been known, even in c England, to render that branch a conspicuous exception to the general industrial energy of the country. The silk manufacture of England remained far behind that of other countries of Europe, so long as the foreign fabrics were prohibited. In addition to the tax levied for the profit, real or imaginary, of the monopolists, the consumer thus pays an additional tax for their laziness and incapacity. When relieved from the immediate stimulus of competition, producers and dealers grow indifferent to the dictates of their ultimate pecuniary interest; preferring to the most hopeful prospects, the present ease of adhering to routine. A person who is already thriving, seldom puts himself out of his way to commence even a lucrative improvement, unless urged by the additional motive of fear lest some rival should supplant him by getting possession of it before him.
The condemnation of monopolies ought not to extend to patents, by which the originator of an improved process is dallowedd to enjoy, for a limited period, the exclusive privilege of using his own improvement. This is not making the commodity dear for his benefit, but merely postponing a part of the increased cheapness which the public owe to the inventor, in order to compensate and reward him for the service. That he ought to be both compensated and rewarded for it, will not be denied, and also that if all were at once allowed to avail themselves of his ingenuity, without having shared the labours or the expenses which he had to incur in bringing his idea into a practical shape, either such expenses and labours would be undergone by nobody except e very opulent and very public-spirited persons, or the state must put a value on the service rendered by an inventor, and make him a pecuniary grant. This has been done in some instances, and may be done without inconvenience in cases of very conspicuous public benefit; but in general an exclusive privilege, of temporary duration, is preferable; because it leaves nothing to any one’s discretion; because the reward conferred by it depends upon the invention’s being found useful, and the greater the usefulness the greater the reward; and because it is paid by the very persons to whom the service is rendered, the consumers of the commodity. So decisive, indeed, are fthesef considerations, that if the system of patents were abandoned for that of rewards by the state, the best shape which these could assume would be that of a small temporary tax, imposed for the inventor’s benefit, on all persons making use of the invention. gTo this, however, or to any other system which would vest in the state the power of deciding whether an inventor should derive any pecuniary advantage from the public benefit which he confers, the objections are evidently stronger and more fundamental than the strongest which can possibly be urged against patentsh. It is generally admitted that the present Patent Laws need much improvement; but in this case, as well as in the closely analogous one of Copyright, it would be a gross immorality in the law to set everybody free to use a person’s work without his consent, and without giving him an equivalent.h I have seen with real alarm several recent attempts, in quarters carrying some authority, to impugn the principle of patents altogether; attempts which, if practically successful, would enthrone free stealing under the prostituted name of free trade, and make the men of brains, still more than at present, the needy retainers and dependents of the men of money-bags.g
§ 5. [Laws against Combination of Workmen] I pass to another kind of government interference, in which the end and the means are alike odious, but which existed in England until not amore thanaba generationb ago, and cin France up to the year 1864c . I mean the laws against combinations of workmen to raise wages; laws enacted and maintained for the declared purpose of keeping wages low, as the famous Statute of Labourers was passed by a legislature of employers, to prevent the labouring class, when its numbers had been thinned by a pestilence, from taking advantage of the diminished competition to obtain higher wages. Such laws exhibit the infernal spirit of the slave master, when to retain the working classes in avowed slavery has ceased to be practicable.
If it were possible for the working classes, by combining among themselves, to raise or keep up the general rate of wages, it needs hardly be said that this would be a thing not to be punished, but to be welcomed and rejoiced at. Unfortunately the effect is quite beyond attainment by such means. The multitudes who compose the working class are too numerous and too widely scattered to combine at all, much more to combine effectually. If they could do so, they might doubtless succeed in diminishing the hours of labour, and obtaining the same wages for less work. dThey would also have a limited power of obtaining, by combination, an increase of general wages at the expense of profits. But the limits of this power are narrow; and were they to attempt to strain it beyond those limits,d this could only be accomplished by keeping a part of their number permanently out of employment. As support from public charity would of course be refused to those who could get work and would not accept it, they would be thrown for support upon the trades union of which they were members; and the eworkpeoplee collectively would be no better off than before, having to support the same numbers out of the same aggregate wages. In this way, however, the class would have its attention forcibly drawn to the fact of a superfluity of numbers, and to the necessity, if they would have high wages, of proportioning the supply of labour to the demand.
Combinations to keep up wages are sometimes successful, in trades where the workpeople are few in number, and collected in a small number of local centres. It is questionable if combinations ever had the smallest effect on the permanent remuneration of spinners or weavers; but the journeymen type-founders, by a close combination, are able, it is said, to keep up a rate of wages much beyond that which is usual in employments of equal hardness and skill; and even the tailors, a much more numerous class, are understood to have had, to some extent, a similar success. A rise of wages, thus confined to particular employments, is not (like a rise of general wages) defrayed from profits, but raises the value and price of the particular article, and falls on the consumer; the capitalist who produces the commodity being only injured in so far as the high price tends to narrow the market; and not even then, unless it does so in a greater ratio than that of the rise of price: for though, at higher wages, he employs, with a given capital, fewer fworkpeoplef , and obtains less of the commodity, yet if he can sell the whole of this diminished quantity at the higher price, his profits are as great as before.
This partial rise of wages, if not gained at the expense of the remainder of the working class, ought gnotg to be regarded as han evilh . The consumer, indeed, must pay for it; but cheapness of goods is desirable only when the cause of it is that their production costs little labour, and not when occasioned by that labour’s being ill remunerated. It may appear, iindeedi , at first sight, that the high wages of the type-founders (for example) are obtained at the general cost of the labouring class. This high remuneration either causes fewer persons to find employment in the trade, or if not, must lead to the investment of more capital in it, at the expense of other trades: in the first case, it throws an additional number of labourers on the general market; in the second, it withdraws from that market a portion of the demand: effects, both of which are injurious to the working classes. Such, indeed, would really be the result of a successful combination in a particular trade or trades, for some time after its formationj; butj when it is a permanent thing, the principles so often insisted upon in this treatise, show that it can have no such effect. The habitual earnings of the working classes at large can be affected by nothing but the habitual requirements of the labouring people: these indeed may be altered, but while they remain the same, wages never fall permanently below the standard of these requirements, and kdo notk long remain above that standard. If there had been no combinations in particular trades, and the wages of those trades had never been kept above the lcommonl level, there is no reason m to suppose that the ncommonn level would have been at all higher than it now is. There would merely have been a ogreatero number of people altogether, and a smaller number of exceptions to the ordinary low rate of wages.
pIf, therefore, no improvement were to be hoped for in the general circumstances of the working classes, the success of a portion of them, however small, in keeping their wages by combination above the market rate, would be wholly a matter of satisfaction. But when the elevation of the character and condition of the entire body has at last become a thing not beyond the reach of rational effort, it is time that the better paid classes of skilled artisans should seek their own advantage in common with, and not by the exclusion of, their fellow-labourers. While they continue to fix their hopes on hedging themselves in against competition, and protecting their own wages by shutting out others from access to their employment, nothing better can be expected from them than that total absence of any large and generous aims, that almost open disregard of all other objects than high wages and little work for their own small body, which were so deplorably evident in the proceedings and manifestoes of the Amalgamated Society of Engineers during theirq quarrel with their employers. Success, even if attainable, in raising up a protected class of working people, would now be a hindrance, instead of a help, to the emancipation of the working classes at large.
But though combinations to keep up wages are seldom effectual, and when effectual, are, for the reasons which I have assigned, seldom desirable, the right of making the attempt is one which cannot be refused to any portion of the working population without great injustice, or without the probability of fatally misleading them respecting the circumstances which determine their condition. So long as combinations to raise wages were prohibited by law, the law appeared to the operatives to be the real cause of the low wages which there was no denying that it had done its best to produce. Experience of strikes has been the best teacher of the labouring classes on the subject of the relation between wages and the demand and supply of labour: and it is most important that this course of instruction should not be disturbed.
rIt is a great error to condemn, per se and absolutely, either trades unions or the collective action of strikes.sEven assuming that a strike must inevitably fails whenever it attempts to raise wages above that market rate which is tfixedt by the demand and usupply;u demand and supply are not physical agencies, which thrust a given amount of wages into a labourer’s hand without the participation of his own will and actions. The market rate is not fixed for him by some self-acting instrument, but is the result of bargaining between human beings—of what Adam Smith calls “the higgling of the market;”[*] and those who do not “higgle” will long continue to pay, even over a counter, more than the market price for their purchases. Still more might poor labourers who have to do with rich employers, remain long without the amount of wages which the demand for their labour would justify, unless, in vernacular phrase, they stood out for it: and how can they stand out for terms without organized concert? What chance would any labourer have, who struck singly for an advance of wages? How could he even know whether the state of the market admitted of a rise, except by consultation with his fellows, naturally leading to concerted action? I do not hesitate to say that associations of labourers, of a nature similar to trades unions, far from being a hindrance to a free market for labour, are the necessary instrumentality of that free market; the indispensable means of enabling the sellers of labour to take due care of their own interests under a system of competition. There is an ulterior consideration of much importance, to which attention was for the first time drawn by vProfessorv Fawcett, in an article in the Westminster Review.[†] Experience has at length enabled the more intelligent trades to take a tolerably correct measure of the circumstances on which the success of a strike for an advance of wages depends. The workmen are now nearly as well informed as the master, of the state of the market for his commodities; they can calculate his gains and his expenses, they know when his trade is or is not prosperous, and only when it is, are they ever again likely to strike for higher wages; which wages their known readiness to strike makes their employers for the most part willing, in that case, to concede. The tendency, therefore, of this state of things is to make a rise of wages in any particular trade usually consequent upon a rise of profits, which, as Mr. Fawcett observes, is a commencement of that regular participation of the labourers in the profits derived from their labour, every tendency to which, for the reasons stated in a previous chapter,* it is so important to encourage, since to it we have chiefly to look for any radical improvement in the social and economical relations between labour and capital. Strikes, therefore, and the trade societies which render strikes possible, are for these various reasons not a mischievous, but on the contrary, a valuable part of the existing machinery of society.pr
w It is, however, an indispensable condition xof tolerating combinations, that theyx should be voluntary. No severity, necessary to the purpose, is too great to be employed against attempts to compel workmen to join a union, or take part in a strike by threats or violence. Mere moral compulsion, by the expression of opinion, the law ought not to interfere with; it belongs to more enlightened opinion to restrain it, by rectifying the moral sentiments of the people. Other questions arise when the combination, being voluntary, proposes to itself objects really contrary to the public good. High wages and short hours are generally good objects, or, at all events, may be soy: buty in many trades unions, it is among the rules that there shall be no task work, or no difference of pay between the most expert workmen and the most unskilful, or that no member of the union shall earn more than a certain sum per week, in order that there may be more employment for the restz; and the abolition of piece work, under more or less of modification, held a conspicuous place among the demands of the Amalgamated Societyz . These are combinations to effect objects which are pernicious. Their success, even when only partial, is a public mischief; and were it complete, would be equal in magnitude to almost any of the evils arising from bad aeconomicala legislation. Hardly anything worse can be said of the worst laws on the subject of bindustry and its remuneration, consistent with the personal freedom of the labourerb , than that they place the energetic and the idle, the skilful and the incompetent, on a level: and thisc, in so far as it is in itself possible, it is the direct tendencyc of the regulations of these unions to do. dIt does not, however, follow as a consequence thatd the law would be warranted in making the formation of such associations illegal and punishablee. Independently of all considerations of constitutional liberty, the best interests of the human racef imperatively require that all economical experiments, voluntarily undertaken, should have the fullest licence, and that force and fraud should be the only means of attempting to benefit themselves, which are interdicted to the less fortunate classes of the community.*e
§ 6. [Restraints on opinion or on its publication] Among the modes of undue exercise of the power of government, on which I have commented in this chapter, I have included only such as rest on theories which have still more or less of footing in the most enlightened countries. I have not spoken of some which have done still greater mischief in times not long past, but which are now generally given up, at least in theory, though enough of them still remains in practice to make it impossible as yet to class them among exploded errors.
The notion, for example, that a government should choose opinions for the people, and should not suffer any doctrines in politics, morals, law, or religion, but such as it approves, to be printed or publicly professed, may be said to be altogether abandoned as a general thesis. It is now well understood that a régime of this sort is fatal to all prosperity, even of an economical kind: that the human mind when prevented either by fear of the law or by fear of opinion from exercising its faculties freely on the most important subjects, acquires a general torpidity and imbecility, by which, when they reach a certain point, it is disqualified from making any considerable advances even in the common affairs of life, and which, when greater still, make it gradually lose even its previous attainments. There cannot be a more decisive example than Spain and Portugal, afor two centuries after the Reformationa . The decline of those countries in national greatness, and even in material civilization, while almost all the other nations of Europe were uninterruptedly advancing, has been ascribed to various causes, but there is one which lies at the foundation of them all: the Holy Inquisition, and the system of mental slavery of which it is the symbol.
Yet although these truths are very widely recognised, and freedom both of opinion and of discussion is admitted as an axiom in all free countries, this apparent liberality and tolerance has acquired so little of the authority of a principle, that it is always ready to give way to the dread or horror inspired by some particular sort of opinions. Within the last bfifteen or twentyb years several individuals have suffered imprisonment, for the public profession, sometimes in a very temperate manner, of cdisbelief in religionc ; and it is probable that both the public and the government, at the first panic which arises on the subject of Chartism or Communism, will fly to similar means for checking the propagation of democratic or antiproperty doctrines. In this country, however, the effective restraints on mental freedom proceed much less from the law or the government, than from the intolerant temper of the national mind; arising no longer from even dasd respectable a source as bigotry or fanaticism, but rather from the general habit, both in opinion and conduct, of making adherence to custom the rule of life, and enforcing it, by social penalties, against all persons who, without a party to back them, assert their individual independence.
Of the Grounds and Limits of the Laisser-Faire or Non-Interference Principle
§ 1. [Governmental intervention distinguished into authoritative and unauthoritative] We have now reached the last part of our undertaking; the discussion, so far as suited to this treatise (that is, so far as it is a question of principle, not detail) of the limits of the province of government: the question, to what objects governmental intervention in the affairs of society may or should extend, over and above those which necessarily appertain to it. No subject has been more keenly contested in the present age: the contest, however, has chiefly ataken placea round certain select points, with only flying excursions bintob the rest of the field. Those indeed who have discussed any particular question of government interference, such as state education (spiritual or secular), regulation of hours of labour, a public provision for the poor, &c., have often dealt largely in general arguments, far outstretching the special application made of them, and have shown a sufficiently strong bias either in favour of letting things alone, or in favour of meddling; but have seldom declared, or apparently decided in their own minds, how far they would carry either principle. The supporters of interference have been content with asserting a general right and duty on the part of government to intervene, wherever its intervention would be useful: and when those who have been called the laisser-faire school have attempted any definite limitation of the province of government, they have usually restricted it to the protection of person and property against force and fraud; a definition to which neither they nor any one else can deliberately adhere, since it excludes, as has been shown in a preceding chapter,* some of the most indispensable and unanimously recognised of the duties of government.
Without professing entirely to supply this deficiency of a general theory, on a question which does not, as I conceive, admit of any universal solution, I shall attempt to afford some little aid towards the resolution of this class of questions as they arise, by examining, in the most general point of view in which the subject can be considered, what are the advantages, and what the evils or inconveniences, of government interference.
We must set out by distinguishing between two kinds of intervention by the government, which, though they may relate to the same subject, differ widely in their nature and effects, and require, for their justification, motives of a very different degree of urgency. The intervention may extend to controlling the free agency of individuals. Government may interdict all persons from doing certain things; or from doing them without its authorization; or may prescribe to them certain things to be done, or a certain manner of doing things which it is left optional with them to do or to abstain from. This is the authoritative interference of government. There is another kind of intervention which is not authoritative: when a government, instead of issuing a command and enforcing it by penalties, adopts the course so seldom resorted to by governments, and of which such important use might be made, that of giving advice, and promulgating information; or when, leaving individuals free to use their own means of pursuing any object of general interest, the government, not meddling with them, but not trusting the object solely to their care, establishes, side by side with their arrangements, an agency of its own for a like purpose. Thus, it is one thing to maintain a Church Establishment, and another to refuse toleration to other religions, or to persons professing no religion. It is one thing to provide schools or colleges, and another to require that no person shall act as an instructor of youth without a government licence. There might be a national bank, or a government manufactory, without any monopoly against private banks and manufactories. There might be a post-office, without penalties against the conveyance of letters by other means. There may be a corps of government engineers for civil purposes, while the profession of a civil engineer is free to be adopted by every one. There may be public hospitals, without any restriction upon private medical or surgical practice.
§ 2. [Objections to government intervention—the compulsory character of the intervention itself, or of the levy of funds to support it] It is evident, even at first sight, that the authoritative form of government intervention has a much more limited sphere of legitimate action than the other. It requires a much stronger necessity to justify it in any case; while there are large departments of human life from which it must be unreservedly and imperiously excluded. Whatever theory we adopt respecting the foundation of the social union, and under whatever political institutions we live, there is a circle around every individual human being, which no government, be it that of one, of a few, or of the many, ought to be permitted to overstep: there is a part of the life of every person who has come to years of discretion, within which the individuality of that person ought to reign uncontrolled either by any other individual or by the public collectively. That there is, or ought to be, some space in human existence thus entrenched aarounda , and sacred from authoritative intrusion, no one who professes the smallest regard to human freedom or dignity will call in question: the point to be determined is, where the limit should be placed; how large a province of human life this reserved territory should include. I apprehend that it ought to include all that part which concerns only the life, whether inward or outward, of the individual, and does not affect the interests of others, or affects them only through the moral influence of example. With respect to the domain of the inward consciousness, the thoughts and feelings, and as much of external conduct as is personal only, involving no consequences, none at least of a painful or injurious kind, to other people; I hold that it is allowable in all, and in the more thoughtful and cultivated often a duty, to assert and promulgate, with all the force they are capable of, their opinion of what is good or bad, admirable or contemptible, but not to compel others to conform to that opinion; whether the force used is that of extra-legal coercion, or exerts itself by means of the law.
Even in those portions of conduct which do affect the interest of others, the onus of making out a case always lies on the defenders of legal prohibitions. It is not a merely constructive or presumptive injury to others, which will justify the interference of law with individual freedom. To be prevented from doing what one is inclined to, or from acting according to one’s own judgment of what is desirable, is not only always irksome, but always tends, pro tanto, to starve the development of some portion of the bodily or mental faculties, either sensitive or active; and unless the conscience of the individual goes freely with the legal restraint, it partakes, either in a great or in a small degree, of the degradation of slavery. Scarcely any degree of utility, short of absolute necessity, will justify a prohibitory regulation, unless it can balsob be made to recommend itself to the general conscience; unless persons of ordinary good intentions either believe already, or can be induced to believe, that the thing prohibited is a thing which they ought not to wish to do.
It is otherwise with governmental interferences which do not restrain individual free agency. When a government provides means for fulfilling a certain end, leaving individuals free to avail themselves of different means if in their opinion preferable, there is no infringement of liberty, no irksome or degrading restraint. One of the principal objections to government interference is then absent. There is, however, in almost all forms of government agency, one thing which is compulsory; the provision of the pecuniary means. These are derived from taxation; or, if existing in the form of an endowment derived from public property, they are still the cause of as much compulsory taxation as the sale or the annual proceeds of the property would enable to be dispensed with.* And the objection necessarily attaching to compulsory contributions, is almost always greatly aggravated by the expensive precautions and onerous restrictions, which are indispensable to prevent evasion of a compulsory tax.
§ 3. [Objections to government intervention—increase of the power and influence of government] A second general objection to government agency, is that every increase of the functions devolving on the government is an increase of its power, both in the form of authority, and still more, in the indirect form of influence. The importance of this consideration, in respect to political freedom, has in general been quite sufficiently recognised, at least in England; but many, in latter times, have been prone to think that limitation of the powers of the government is only essential when the government itself is badly constituted; when it does not represent the people, but is the organ of a class, or coalition of classes: and that a government of sufficiently popular constitution might be trusted with any amount of power over the nation, since its power would be only that of the nation over itself. This might be true, if the nation, in such cases, did not practically mean a mere majority of the nation, and if minorities were only capable of oppressing, but not of being oppressed. Experience, however, proves that the depositaries of power who are mere delegates of the people, that is of a majority, are quite as ready (when they think they can count on popular support) as any organs of oligarchy, to assume arbitrary power, and encroach unduly on the liberty of private life. The public collectively is abundantly ready to impose, not only its generally narrow views of its interests, but its abstract opinions, and even its tastes, as laws binding upon individuals. And athea present civilization tends so strongly to make the power of persons acting in masses the only substantial power in society, that there never was more necessity for surrounding individual independence of thought, speech, and conduct, with the most powerful defences, in order to maintain that originality of mind and individuality of character, which are the only source of any real progress, and of most of the qualities which make the human race much superior to any herd of animals. Hence it is no less important in a democratic than in any other government, that all tendency on the part of public authorities to stretch their interference, and assume a power of any sort which can easily be dispensed with, should be regarded with unremitting jealousy. Perhaps this bis even moreb important in a democracy than in any other form of political society; because where public opinion is sovereign, an individual who is oppressed by the sovereign does not, as in most other states of things, find cac rival power to which he can appeal for reliefd, or, at all events, for sympathyd .
§ 4. [Objections to government intervention—increase of the occupations and responsibilities of government] A third general objection to government agency, rests on the principle of the division of labour. Every additional function undertaken by the government, is a fresh occupation imposed upon a body already overcharged with duties. A natural consequence is that most things are ill done; much not done at all, because the government is not able to do it without delays which are fatal to its purpose; that the more troublesome, and less showy, of the functions undertaken, are postponed or neglected, and an excuse is always ready for the neglect; while the heads of the administration have their minds so fully taken up with official details, in however perfunctory a manner superintended, that they have no time or thought to spare for the great interests of the state, and the preparation of enlarged measures of social improvement.
But these inconveniences, though real and serious, result much more from the bad organization of governments, than from the extent aanda variety of the duties undertaken by them. Government is not a name for some one functionary, or definite number of functionaries: there may be almost any amount of division of labour within the administrative body itself. The evil in question is felt in great magnitude under some of the governments bofb the Continent, where six or eight men, living at the capital and known by the name of ministers, demand that the whole public business of the country shall pass, or be supposed to pass, under their individual eye. But the inconvenience would be reduced to a very manageable compass, in a country in which there was a proper distribution of functions between the central and local officers of government, and in which the central body was divided into a sufficient number of departments. When Parliament thought it expedient to confer on the government an inspecting and partially controlling authority over railways, it did not add railways to the department of the Home Minister, but created a Railway Board. When it determined to have a central superintending authority for pauper administration, it established the Poor Law Commission. There are few countries in which a greater number of functions are discharged by public officers, than in some states of the American Union, particularly the New England States: but the division of labour in public business is extreme; most of these officers being not even amenable to any common superior, but performing their duties freely, under the double check of election by their townsmen, and civil as well as criminal responsibility to the tribunals.
It is, no doubt, indispensable to good government that the chiefs of the administration, whether permanent or temporary, should extend a commanding, though general, view over the ensemble of all the interests confided, in any degree, to the responsibility of the central power. But with a skilful internal organization of the administrative machine, leaving to subordinates, and as far as possible, to local subordinates, not only the execution, but to a great degree the control, of details; holding them accountable for the results of their acts rather than for the acts themselves, except where these come within the cognizance of the tribunals; taking the most effectual securities for honest and capable appointments; opening a broad path to promotion from the inferior degrees of the administrative scale to the superior; leaving, at each step, to the functionary, a wider range in the origination of measures, so that, in the highest grade of all, deliberation cmightc be concentrated on the great collective interests of the country in each department; if all this were done, the government would not probably be overburthened by any business, in other respects fit to be undertaken by it; though the overburthening would remain as a serious addition to the inconveniences incurred by its undertaking any which was unfit.
§ 5. [Objections to government intervention—superior efficiency of private agency, owing to stronger interest in the work] But though a better organization of governments would greatly diminish the force of the objection to the mere multiplication of their duties, it would still remain true that in all the more advanced communities, the great majority of things are worse done by the intervention of government, than the individuals most interested in the matter would do them, or cause them to be done, if left to themselves. The grounds of this truth are expressed with tolerable exactness in the popular dictum, that people understand their own business and their own interests better, and care for them more, than the government does, or can be expected to do. This maxim holds true throughout the greatest part of the business of life, and wherever it is true we ought to condemn every kind of government intervention that conflicts with it. The inferiority of government agency, for example, in any of the common operations of industry or commerce, is proved by the fact, that it is hardly ever able to maintain itself in equal competition with individual agency, where the individuals possess the requisite degree of industrial enterprise, and can command the necessary assemblage of means. All the facilities which a government enjoys of access to information; all the means which it possesses of remunerating, and therefore of commanding, the best available talent in the market—are not an equivalent for the one great disadvantage of an inferior interest in the result.
It must be remembered, besides, that even if a government were superior in intelligence and knowledge to any single individual in the nation, it must be inferior to all the individuals of the nation taken together. It can neither possess in itself, nor enlist in its service, more than a portion of the acquirements and capacities which the country contains, applicable to any given purpose. There must be many persons equally qualified for the work with those whom the government employs, even if it selects its instruments with no reference to any consideration but their fitness. Now these are the very persons into whose hands, in the cases of most common occurrence, a system of individual agency naturally tends to throw the work, because they are capable of doing it better aora on cheaper terms than any other person. So far as this is the case, it is evident that government, by excluding or even by superseding individual agency, either substitutes a less qualified instrumentality for one better qualified, or at any rate substitutes its own mode of accomplishing the work, for all the variety of modes which would be tried by a number of equally qualified persons aiming at the same end; a competition by many degrees more propitious to the progress of improvement, than any uniformity of system.
§ 6. [Objections to government intervention—importance of cultivating habits of collective action in the people] I have reserved for the last place one of the strongest of the reasons against the extension of government agency. Even if the government could comprehend within itself, in each department, all the most eminent intellectual capacity and active talent of the nation, it would not be the less desirable that the conduct of a large portion of the affairs of athea society should be left in the hands of the persons immediately interested in them. The business of life is an essential part of the practical education of a people; without which, book and school instruction, though most necessary and salutary, does not suffice to qualify them for conduct, and for the adaptation of means to ends. Instruction is only one of the desiderata of mental improvement; another, almost as indispensable, is a vigorous exercise of the active energies; labour, contrivance, judgment, self-control: and the natural stimulus to these is the difficulties of life. This doctrine is not to be confounded with the complacent optimism, which represents the bevilsb of life as desirable things, because they call forth qualities adapted to combat with cevilsc . It is only because the difficulties exist, that the qualities which combat with them are of any value. As practical beings it is our business to free human life from as many as possible of its difficulties, and not to keep up a stock of them as hunters preserve game, for the exercise of pursuing it. But since the need of active talent and practical judgment in the affairs of life can only be diminished, and not, even on the most favourable supposition, done away with, it is important that those endowments should be cultivated not merely in a select few, but in all, and that the cultivation should be more varied and complete than most persons are able to find in the narrow sphere of their merely individual interests. A people among whom there is no habit of spontaneous action for a collective interest—who look habitually to their government to command or prompt them in all matters of joint concern—who expect to have everything done for them, except what can be made an affair of mere habit and routine—have their faculties only half developed; their education is defective in one of its most important branches.
Not only is the cultivation of the active faculties by exercise, diffused through the whole community, in itself one of the most valuable of national possessions: it is rendered, not less, but more, necessary, dwhend a high degree of that indispensable culture is systematically kept up in the chiefs and functionaries of the state. There cannot be a combination of circumstances more dangerous to human welfare, than that in which intelligence and talent are maintained at a high standard within a governing corporation, but starved and discouraged outside the pale. Such a system, more completely than any other, embodies the idea of despotism, by arming with intellectual superiority as an additional weapon, those who have already the legal power. It approaches as nearly as the organic difference between human beings and other animals admits, to the government of sheep by their shepherd, without anything like so strong an interest as the shepherd has in the thriving condition of the flock. The only security against political slavery, is the check maintained over governors, by the diffusion of intelligence, activity, and public spirit among the governed. Experience proves the extreme difficulty of permanently keeping up a sufficiently high standard of those qualities; a difficulty which increases, as the advance of civilization and security removes one after another of the hardships, embarrassments, and dangers against which individuals had formerly no resource but in their own strength, skill, and courage. It is therefore of supreme importance that all classes of the community, down to the lowest, should have much to do for themselves; that as great a demand should be made upon their intelligence and virtue as it is in any respect equal to; that the government should not only leave as efare as possible to their own faculties the conduct of whatever concerns themselves alone, but should suffer them, or rather encourage them, to manage as many as possible of their joint concerns by voluntary co-operation; since fthisf discussion and management of collective interests is the great school of that public spirit, and the great source of that intelligence of public affairs, which are always regarded as the distinctive character of the public of free countries.
A democratic constitution, not supported by democratic institutions in detail, but confined to the central government, not only is not political freedom, but often creates a spirit precisely the reverse, carrying down to the lowest grade in society the desire and ambition of political domination. In some countries the desire of the people is for not being tyrannized over, but in others it is merely for an equal chance to everybody of tyrannizing. Unhappily this last state of the desires is fully as natural to mankind as the former, and in many of the conditions even of civilized humanity, is far more largely exemplified. In proportion as the people are accustomed to manage their affairs by their own active intervention, instead of leaving them to the government, their desires will turn to repelling tyranny, rather than to tyrannizing: while in proportion as all real initiative and direction resides in the government, and individuals habitually feel and act as under its perpetual tutelage, popular institutions develope in them not the desire of freedom, but an unmeasured appetite for place and power; diverting the intelligence and activity of the country from its principal business, to a wretched competition for the selfish prizes and the petty vanities of office.
§ 7. [Laisser-faire the general rule] The preceding are the principal reasons, of a general character, in favour of restricting to the narrowest compass the intervention of a public authority in the business of the community: and few will dispute the more than sufficiency of these reasons, to throw, in every instance, the burthen of making out a strong case, not on those who resist, but on those who recommend, government interference. Laisser-faire, in short, should be the general practice: every departure from it, unless required by some great good, is a certain evil.
The degree in which the maxim, even in the cases to which it is most manifestly applicable, has heretofore been infringed by governments, future ages will probably have difficulty in crediting. Some idea may be formed of it from the description aofa M. Dunoyer* of the restraints imposed on the operations of manufacture under the old government of France, by the meddling and regulating spirit of legislation.
“La société exerçait sur la fabrication la juridiction la plus illimitée et la plus arbitraire: elle disposait sans scrupule des facultés des fabricants; elle décidait qui pourrait travailler, quelle chose on pourrait faire, quels matériaux on devrait employer, quels procédés il faudrait suivre, quelles formes on donnerait aux produits, etc. Il ne suffisait pas de faire bien, de faire mieux, il fallait faire suivant les règles. Qui ne connaît ce règlement de 1670, qui préscrivait de saisir et de clouer au poteau, avec le nom des auteurs, les marchandises non conformes aux règles tracées, et qui, à la seconde récidive, voulait que les fabricants y fussent attachés eux-mêmes? Il ne s’agissait pas de consulter le goût des consommateurs, mais de se conformer aux volontés de la loi. Des légions d’inspecteurs, de commissaires, de contrôleurs, de jurés, de gardes, étaient chargés de les faire exécuter; on brisait les métiers, on brûlait les produits qui n’y étaient pas conformes: les améliorations étaient punies; on mettait les inventeurs à l’amende. On soumettait à des règles différentes la fabrication des objets destinés à la consommation intérieure et celle des produits destinés au commerce étranger. Un artisan n’était pas le maître de choisir le lieu de son établissement, ni de travailler en toute saison, ni de travailler pour tout le monde. Il existe un décret du 30 Mars 1700, qui borne à dix-huit villes le nombre des lieux où l’on pourra faire des bas au métier; un arrêt du 18 Juin 1723 enjoint aux fabricants de Rouen de suspendre leurs travaux du 1er Juillet au 15 Septembre, afin de faciliter ceux de la récolte; Louis XIV., quand il voulut entreprendre la colonnade du Louvre, défendit aux particuliers d’employer des ouvriers sans sa permission, sous peine de 10,000 livres d’amende, et aux ouvriers de travailler pour les particuliers, sous peine, pour la première fois, de la prison, et pour la seconde, des galères.”
That these and similar regulations were not a dead letter, and that the officious and vexatious meddling was prolonged down to the French Revolution, we have the testimony of Roland, the Girondist minister.† “I have seen,” says he, “eighty, ninety, a hundred pieces of cotton or woollen stuff cut up, and completely destroyed. I have witnessed similar scenes every week for a number of years. I have seen manufactured goods confiscated; heavy fines laid on the manufacturers; some pieces of fabric were burnt in public places, and at the hours of market: others were fixed to the pillory, with the name of the manufacturer inscribed upon them, and he himself was threatened with the pillory, in case of a second offence. All this was done under my eyes, at Rouen, in conformity with existing regulations, or ministerial orders. What crime deserved so cruel a punishment? Some defects in the materials employed, or in the texture of the fabric, or even in some of the threads of the warp.
“I have frequently seen manufacturers visited by a band of satellites who put all in confusion in their establishments, spread terror in their families, cut the stuffs from the frames, tore off the warp from the looms, and carried them away as proofs of infringement; the manufacturers were summoned, tried, and condemned: their goods confiscated; copies of their judgment of confiscation posted up in every public place; fortune, reputation, credit, all was lost and destroyed. And for what offence? Because they had made of worsted, a kind of cloth called shag, such as the English used to manufacture, and even sell in France, while the French regulations stated that that kind of cloth should be made with mohair. I have seen other manufacturers treated in the same way, because they had made camlets of a particular width, used in England and Germany, for which there was a great demand from Spain, Portugal, and other countries, and from several parts of France, while the French regulations prescribed other widths for camlets.”
The time is gone by, when such applications as these of the principle of “paternal government” would be attempted, in even the least enlightened country of the European commonwealth of nations. In such cases as those cited, all the general objections to government interference are valid, and several of them in nearly their highest degree. But we must now turn to the second part of our task, and direct our attention to cases, in which some of those general objections are altogether absent, while those which can never be got rid of entirely, are overruled by counter-considerations of still greater importance.
We have observed that, as a general rule, the business of life is better performed when those who have an immediate interest in it are left to take their own course, uncontrolled either by the mandate of the law or by the meddling of any public functionary. The persons, or some of the persons, who do the work, are likely to be better judges than the government, of the means of attaining the particular end at which they aim. Were we to suppose, what is not very probable, that the government has possessed itself of the best knowledge which had been acquired up to a given time by the persons most skilled in the occupation; even then, the individual bagents haveb so much stronger and more direct an interest in the result, that the means are far more likely to be improved and perfected if left to ctheirc uncontrolled choice. But if the workman is generally the best selector of means, can it be affirmed with the same universality, that the consumer, or person served, is the most competent judge of the end? Is the buyer always qualified to judge of the commodity? If not, the presumption in favour of the competition of the market does not apply to the case; and if the commodity be one, in the quality of which society has much at stake, the balance of advantages may be in favour of some mode dandd degree of intervention, by the authorized representatives of the collective interest of the state.
§ 8. [Large exceptions to laisser-faire. Cases in which the consumer is an incompetent judge of the commodity. Education] Now, the proposition that the consumer is a competent judge of the commodity, can be admitted only with numerous abatements and exceptions. He is generally the best judge (though even this is not true universally) of the material objects produced for his use. These are destined to supply some physical want, or gratify some taste or inclination, respecting which wants or inclinations there is no appeal from the person who feels them; or they are the means and appliances of some occupation, for the use of the persons engaged in it, who may be presumed to be judges of the things required in their own habitual employment. But there are other things, of the worth of which the demand of the market is by no means a test; things of which the utility does not consist in ministering to inclinations, nor in serving the daily uses of life, and the want of which is least felt where the need is greatest. This is peculiarly true of those things which are chiefly useful as tending to raise the character of human beings. The uncultivated cannot be competent judges of cultivation. Those who most need to be made wiser and better, usually desire it least, and if they desired it, would be incapable of finding the way to it by their own lights. It will continually happen, on the voluntary system, that, the end not being desired, the means will not be provided at all, or that, the persons requiring improvement having an imperfect or altogether erroneous conception of what they want, the supply called forth by the demand of the market will be anything but what is really required. Now any well-intentioned and tolerably civilized government may think, without presumption, that it does or ought to possess a degree of cultivation above the average of the community which it rules, and that it should therefore be capable of offering better education and better instruction to the people, than the greater number of them would spontaneously ademanda . Education, therefore, is one of those things which it is admissible in principle that a government should provide for the people. The case is one to which the reasons of the non-interference principle do not necessarily or universally extend.*
With regard to elementary education, the exception to ordinary rules may, I conceive, justifiably be carried still further. There are certain primary elements and means of knowledge, which it is in the highest degree desirable that all human beings born into the community should acquire during childhood. If their parents, or those on whom they depend, have the power of obtaining for them this instruction, and fail to do it, they commit a double breach of duty, towards the children themselves, and towards the members of the community generally, who are all liable to suffer seriously from the consequences of ignorance and want of education in their fellow-citizens. It is therefore an allowable exercise of the powers of government, to impose on parents the legal obligation of giving elementary instruction to children. This, however, cannot fairly be done, without taking measures to insure that such instruction shall be always accessible to them, either gratuitously or at a trifling expense.
It may indeed be objected that the education of children is one of those expenses which parents, even of the labouring class, ought to defray; that it is desirable that they should feel it incumbent on them to provide by their own means for the fulfilment of their duties, and that by giving education at the cost of others, just as much as by giving subsistence, the standard of necessary wages is proportionally lowered, and the springs of exertion and self-restraint in so much relaxed. bThis argument could, at best, be only validb if the question were that of substituting a public provision for what individuals would otherwise do for themselves; if all parents in the labouring class recognised and practised the duty of giving instruction to their children at their own expensec. But inasmuch asc parents do not practise this duty, and do not include education among those necessary expenses which their wages must provide for, dtherefored the general rate of wages is not high enough to bear those expenses, and e they must be borne from some other source. And this is not one of the cases in which the tender of help perpetuates the state of things which renders help necessary. Instruction, when it is really such, does not enervate, but strengthens as well as enlarges the active faculties: in whatever manner acquired, its effect on the mind is favourable to the spirit of independence: and when, unless had gratuitously, it would not be had at all, help in this form has the opposite tendency to that which in so many other cases makes it objectionable; it is help towards doing without help.
In England, and most European countries, elementary instruction cannot be paid for, at its full cost, from the common wages of unskilled labour, and would not if it could. The alternative, therefore, is not between government and private speculation, but between a government provision and voluntary charity: between interference by government, and interference by associations of individuals, subscribing their own money for the purpose, like the two great School Societies. It is, of course, not desirable that anything should be done by funds derived from compulsory taxation, which is already sufficiently well done by individual liberality. How far this is the case with school instruction, is, in each particular instance, a question of fact. The education provided in this country on the voluntary principle has of late been so much discussed, that it is needless in this place to criticise it minutely, and I shall merely express my conviction, that even in quantity it is, and is likely to remain, altogether insufficient, while in quality, though with some slight tendency to improvement, it is never good except by some rare accident, and generally so bad as to be little more than nominal. I hold it therefore the duty of the government to supply the defect, by fgiving pecuniary support to elementary schools, such as to render themf accessible to all the children of the poor, either freely, or for a payment too inconsiderable to be sensibly feltg .
One thing must be strenuously insisted on; that the government must claim no monopoly for its education, either in the lower or in the higher branches; must exert neither authority nor influence to induce the people to resort to its teachers in preference to others, and must confer no peculiar advantages on those who have been instructed by them. Though the government teachers will probably be superior to the average of private instructors, they will not embody all the knowledge and sagacity to be found in all instructors taken together, and it is desirable to leave open as many roads as possible to the desired end. hIt is not endurableh that a government should, either de jure or de facto, have a complete control over the education of the i people. To possess such a control, and actually exert it, is to be jdespoticj . A government which can mould the opinions and sentiments of the people from their youth upwards, can do with them whatever it pleases. Though a government, therefore, may, and in many cases ought to, establish schools and colleges, it must neither compel nor bribe any person to come to them; nor ought the power of individuals to set up rival establishments, to depend in any degree upon its authorization. It kwouldk be justified in requiring from all the people that they shall possess instruction in certain things, but not in prescribing to them how or from whom they shall obtain it.
§ 9. [Case of persons exercising power over others. Protection of children and young persons; of the lower animals. Case of women not analogous] In the matter of education, the intervention of government is justifiable, because the case is not one in which the interest and judgment of the consumer are a sufficient security for the goodness of the commodity. Let us now consider another class of cases, where there is no person in the situation of a consumer, and where the interest and judgment to be relied on are those of the agent himself; as in the conduct of any business in which he is exclusively interested, or in entering into any contract or engagement by which he himself is to be bound.
The ground of the practical principle of non-interference must here be, that most persons take a juster and more intelligent view of their own interest, and of the means of promoting it, than can either be prescribed to them by a general enactment of the legislature, or pointed out in the particular case by a public functionary. The maxim is unquestionably sound as a general rule; but there is no difficulty in perceiving some very large and conspicuous exceptions to it. These may be classed under several heads.
First:—The individual who is presumed to be the best judge of his own interests may be incapable of judging or acting for himself; may be a lunatic, an idiot, an infant: or though not wholly incapable, may be of immature years and judgment. In this case the foundation of the laisser-faire principle breaks down entirely. The person most interested is not the best judge of the matter, nor a competent judge at all. Insane persons are everywhere regarded as proper objects of the care of the state.* In the case of children and young persons, it is common to say, that though they cannot judge for themselves, they have their parents or other relatives to judge for them. But this removes the question into a different category; making it no longer a question whether the government should interfere with individuals in the direction of their own conduct and interests, but whether it should leave absolutely in their power the conduct and interests of somebody else. Parental power is as susceptible of abuse as any other power, and is, as a matter of fact, constantly abused. If laws do not succeed in preventing parents from brutally ill-treating, and even from murdering their children, far less ought it to be presumed that the interests of children will never be sacrificed, in more commonplace and less revolting ways, to the selfishness or the aignorancea of their parents. Whatever it can be clearly seen that parents ought to do or forbear for the interest of children, the law is warranted, if it is able, in compelling to be done or forborne, and is generally bound to do so. To take an example from the peculiar province of political economy; it is right that children, and young persons not yet arrived at maturity, should be protected, so far as the eye and hand of the state can reach, from being over-worked. Labouring for too many hours in the day, or on work beyond their strength, should not be permitted to them, for if permitted it may always be compelled. Freedom of contract, in the case of children, is but another word for freedom of coercion. Education also, the best which circumstances admit of their receiving, is not a thing which parents or relatives, from indifferences, jealousy, or avarice, should have it in their power to withhold.
The reasons for legal intervention in favour of children, apply not less strongly to the case of those unfortunate slaves and victims of the most brutal part of mankind, the lower animals. It is by the grossest misunderstanding of the principles of liberty, that the infliction of exemplary punishment on ruffianism practised towards these defenceless creatures, has been treated as a meddling by government with things beyond its province; an interference with domestic life. The domestic life of domestic tyrants is one of the things which it is the most imperative on the law to interfere with; and it is to be regretted that metaphysical scruples respecting the nature and source of the authority of government, should induce many warm supporters of laws against cruelty to animals, to seek for a justification of such laws in the incidental consequences of the indulgence of ferocious habits to the interests of human beings, rather than in the intrinsic merits of the case itself. What it would be the duty of a human being, possessed of the requisite physical strength, to prevent by force if attempted in his presence, it cannot be less incumbent on society generally to repress. The existing laws of England on the subject are chiefly defective in the trifling, often almost nominal, maximum, to which the penalty even in the worst cases is limitedb .
Among those members of the community whose freedom of contract ought to be controlled by the legislature for their own protection, on account (it is said) of their dependent position, it is frequently proposed to include women: and in the cexistingc Factory dActsd , their labour, in common with that of young persons, has been placed under peculiar restrictions. But the classing together, for this and other purposes, of women and children, appears to me both indefensible in principle and mischievous in practice. Children below a certain age cannot judge or act for themselves; up to a considerably greater age they are inevitably more or less disqualified for doing so; but women are as capable as men of appreciating and managing their own concerns, and the only hindrance to their doing so arises from the injustice of their present social position. eWhene the law makes everything which the wife acquires, the property of the husband, while by compelling her to live with him it forces her to submit to almost any amount of moral and even physical tyranny which he may choose to inflict, there is some ground for regarding every act done by her as done under coercion: but it is the great error of reformers and philanthropists in our time, to nibble at the consequences of unjust power, instead of redressing the injustice itself. If women had as absolute a control as men have, over their own persons and their own patrimony or acquisitions, there would be no plea for limiting their hours of labouring for themselves, in order that they might have time to labour for the husband, in what is called, by the advocates of restriction, his home. Women employed in factories are the only women in the labouring rank of life whose position is not that of slaves and drudges; precisely because they cannot easily be compelled to work and earn wages in factories against their will. For improving the condition of women, it should, on the contrary, be an object to give them the readiest access to independent industrial employment, instead of closing, either entirely or partially, that which is already open to them.
§ 10. [Case of contracts in perpetuity] A second exception to the doctrine that individuals are the best judges of their own interest, is when an individual attempts to adecidea irrevocably now, what will be best for his interest at some future and distant time. The presumption in favour of individual judgment is only legitimate, where the judgment is grounded on actual, and especially on present, personal experience; not where it is formed antecedently to experience, and not suffered to be reversed even after experience has condemned it. When persons have bound themselves by a contract, not simply to do some one thing, but to continue doing something for ever or for a prolonged period, without any power of revoking the engagement, the presumption which their perseverance in that course of conduct would otherwise raise in favour of its being advantageous to them, does not exist; and any such presumption which can be grounded on their having voluntarily entered into the contract, perhaps at an early age, and without any real knowledge of what they undertook, is commonly next to null. The practical maxim of leaving contracts free, is not applicable without great limitations in case of engagements in perpetuity; and the law should be extremely jealous of such engagements; should refuse its sanction to them, when the obligations they impose are such as the contracting party cannot be a competent judge of; if it ever does sanction them, it should take every possible security for their being contracted with foresight and deliberation; and in compensation for not permitting the parties themselves to revoke their engagement, should grant them a release from it, on a sufficient case being made out before an impartial authority. bThese considerations are eminently applicable to marriage, the most important of all cases of engagement for life.b
§ 11. [Cases of delegated management] The third exception which I shall notice, to the doctrine that government cannot manage the affairs of individuals as well as the individuals themselves, has reference to the great class of cases in which the individuals can only manage the concern by delegated agency, and in which the so-called private management is, in point of fact, hardly better entitled to be called management by the persons interested, than administration by a public officer. Whatever, if left to spontaneous agency, can only be done by joint-stock associations, will often be as well, and sometimes better done, as far as the actual work is concerned, by the state. Government management is, indeed, proverbially jobbing, careless, and ineffective, but so likewise has generally been joint-stock management. The directors of a joint-stock company, it is true, are always shareholders; but also the members of a government are invariably taxpayers; and in the case of directors, no more than in that of governments, is their proportional share of the benefits of good management, equal to the interest they may possibly have in mismanagement, even without reckoning the interest of their ease. It may be objected, that the shareholders, in their collective character, exercise a certain control over the directors, and have almost always full power to remove them from office. Practically, however, the difficulty of exercising this power is found to be so great, that it is hardly ever exercised except in cases of such flagrantly unskilful, or, at least, unsuccessful management, as would generally produce the ejection from office of managers appointed by the government. Against the avery ineffectuala security afforded by meetings of shareholders, and by their individual inspection and inquiries, may be placed the greater publicity and more active discussion and comment, to be expected in free countries with regard to affairs in which the general government takes part. The defects, therefore, of government management, do not seem to be necessarily much greater, if necessarily greater at all, than those of management by joint-stock.
The true reasons in favour of leaving to voluntary associations all such things as they are competent to perform, would exist in equal strength if it were certain that the work itself would be as well or better done by public officers. These reasons have been already pointed out: the mischief of overloading the chief functionaries of government with demands on their attention, and diverting them from duties which they alone can discharge, to objects which can be sufficiently well attained without them; the danger of unnecessarily swelling the direct power and indirect influence of government, and multiplying occasions of collision between its agents and private citizens; and the b inexpediency of concentrating in a dominant bureaucracy, all the skill and experience in the management of large interests, and all the power of organized action, existing in the community; a practice which keeps the citizens in a relation to the government like that of children to their guardians, and is a main cause of the inferior capacity for political life which has hitherto characterized the over-governed countries of the Continent, whether with or without the forms of representative government.*
But although, for these reasons, most things which are likely to be even tolerably done by voluntary associations, should, generally speaking, be left to them; it does not follow that the manner in which those associations perform their work should be entirely uncontrolled by the government. There are many cases in which the agency, of whatever nature, by which a service is performed, is certain, from the nature of the case, to be virtually single; in which a practical monopoly, with all the power it confers of taxing the community, cannot be prevented from existing. I have already more than once adverted to the case of the gas and water companies, among which, though perfect freedom is allowed to competition, none really takes place, and practically they are found to be even more irresponsible, and unapproachable by individual complaints, than the government. There are the expenses without the advantages of plurality of agency; and the charge made for services which cannot be dispensed with, is, in substance, quite as much compulsory taxation as if imposed by law; there are few householders who make any distinction between their “water rate” and their other local taxes. In the case of these particular services, the reasons preponderate in favour of their being performed, like the paving and cleansing of the streets, not certainly by the general government of the state, but by the municipal authorities of the town, and the expense defrayed, as even now it in fact is, by a local rate. But in the many analogous cases which it is best to resign to voluntary agency, the community needs some other security for the fit performance of the service than the interest of the managers; and it is the part of government, either to subject the business to reasonable conditions for the general advantage, or to retain such power over it, that the profits of the monopoly may at least be obtained for the public. This applies to the case of a road, a canal, or a railway. These are always, in a great degree, practical monopolies; and a government which concedes such monopoly unreservedly to a private company, does much the same thing as if it allowed an individual or an association to levy any tax they chose, for their own benefit, on all the malt produced in the country, or on all the cotton imported into it. To make the concession for a limited time is generally justifiable, on the principle which justifies patents for inventions: but the state should either reserve to itself a reversionary property in such public works, or should retain, and freely exercise, the right of fixing a maximum of fares and charges, and, from time to time, varying that maximum. It is perhaps necessary to remark, that the state may be the proprietor of canals or railways without itself working them; and that they will almost always be better worked by means of a company, renting the railway or canal for a limited period from the state.
§ 12. [Cases in which public intervention may be necessary to give effect to the wishes of the persons interested. Examples: hours of labour; disposal of colonial lands] To a fourth case of exception I must request particular attention, it being one to which, as it appears to me, the attention of political economists has not yet been sufficiently drawn. There are matters in which the interference of law is required, not to overrule the judgment of individuals respecting their own interest, but to give effect to that judgment: they being unable to give effect to it except by concert, which concert again cannot be effectual unless it receives validity and sanction from the law. For illustration, and without prejudging the particular point, I may advert to the question of diminishing the hours of labour. Let us suppose, what is at least supposable, whether it be the fact or not—that a general reduction of the hours of factory laboura, say from ten to ninea , would be for the advantage of the work-people: that they would receive as high wages, or nearly as high, for bnineb hours’ labour as they receive for ctenc . If this would be the result, and if the operatives generally are convinced that it would, the limitation, some may say, will be adopted spontaneouslyd . I answer, that it will not be adopted unless the body of operatives bind themselves to one another to abide by it. A workman who refused to work more than eninee hours while there were others who worked ftenf , would either not be employed at all, or if employed, must submit to lose gonetenthg of his wages. However convinced, therefore, he may be that it is the interest of the class to work short time, it is contrary to his own interest to set the example, unless he is well assured that all or most others will follow it. But suppose a general agreement of the whole class: might not this be effectual without the sanction of law? Not unless enforced by opinion with a rigour practically equal to that of law. For however beneficial the observance of the regulation might be to the class collectively, the immediate interest of every individual would lie in violating it: and the more numerous those were who adhered to the rule, the more would individuals gain by departing from it. If nearly all restricted themselves to hnineh hours, those who chose to work for iteni would gain all the jadvantagesj of the restriction, together with the profit of infringing it; they would get ktenk hours’ wages for lninel hours’ work, and man hour’sm wages besides. I grant that if a large majority adhered to the nninen hours, there would be no harm done: the benefit would be, in the main, secured to the class, while those individuals who preferred to work harder and earn more, would have an opportunity of doing so. This certainly would be the state of things to be wished for; and assuming that a reduction of hours without any diminution of wages could take place without expelling the commodity from some of its markets—which is in every particular instance a question of fact, not of principle—the manner in which it would be most desirable that this effect should be brought about, would be by a quiet change in the general custom of the trade; short hours becoming, by spontaneous choice, the general practice, but those who chose to deviate from it having the fullest liberty to do so. Probably, however, so many would prefer the oteno hours’ work on the improved terms, that the limitation could not be maintained as a general practice: what some did from choice, others would soon be obliged to do from necessity, and those who had chosen long hours for the sake of increased wages, would be forced in the end to work long hours for no greater wages than before. Assuming then that it really would be the interest of each to work only pninep hours if he could be assured that all others would do the same, there might be no means of their attaining this object but by converting their supposed mutual agreement into an engagement under penalty, by consenting to have it enforced by law. I qam not expressing anyq opinion in favour of such an enactment, rwhich has neversin this countrys been demanded, and which I certainly should not, in present circumstances, recommend:r but it serves to exemplify the manner in which classes of persons may need the assistance of law, to give effect to their deliberate collective opinion of their own interest, by affording to every individual a guarantee that his competitors will pursue the same course, without which he cannot safely adopt it himself.
Another exemplification of the same principle t is afforded by what is known as the Wakefield system of colonization. This system is grounded on the important principle, that the degree of productiveness of land and labour depends on their being in a due proportion to one another; that if a few persons in a newly-settled country attempt to occupy and appropriate a large district, or if each labourer becomes too soon an occupier and cultivator of land, there is a loss of productive power, and a great retardation of the progress of the colony in wealth and civilization: that nevertheless the instinct (uas it may almostu be called) of appropriation, and the feelings associated in old countries with landed proprietorship, induce almost every emigrant to take possession of as much land as he has the means of acquiring, and every labourer to become at once a proprietor, cultivating his own land with no other aid than that of his family. If this propensity to the immediate possession of land could be in some degree restrained, and each labourer induced to work a certain number of years on hire before he became a landed proprietor, a perpetual stock of hired labourers could be maintained, available for roads, canals, works of irrigation, &c., and for the establishment and carrying on of the different branches of town industry; whereby the labourer, when he did at last become a landed proprietor, would find his land much more valuable, through access to markets, and facility of obtaining hired labour. Mr. Wakefield therefore proposed to check the premature occupation of land, and dispersion of the people, by putting upon all unappropriated lands a rather high price, the proceeds of which were to be expended in conveying emigrant labourers from the mother country.
This salutary provision, however, has been objected to, in the name and on the authority of what was represented as the great principle of political economy, that individuals are the best judges of their own interest. It was said, that when things are left to themselves, land is appropriated and occupied by the spontaneous choice of individuals, in the quantities and at the times most advantageous to each person, and therefore to the community generally; and that to interpose artificial obstacles to their obtaining land, is to prevent them from adopting the course which in their own judgment is most beneficial to them, from a self-conceited notion of the legislator, that he knows what is most for their interest, better than they do themselves. Now this is a complete misunderstanding, either of the system itself, or of the principle with which it is alleged to conflict. The oversight is similar to that which we have just seen exemplified on the subject of hours of labour. However beneficial it might be to the colony in the aggregate, and to each individual composing it, that no one should occupy more land than he can properly cultivate, nor become a proprietor until there are other labourers ready to take his place in working for hire; it can never be the interest of an individual to exercise this forbearance, unless he is assured that others will do so too. Surrounded by settlers who have each their thousand acres, how is he benefited by restricting himself to fifty? or what does va labourerv gain by deferring the acquisition altogether for a few years, if all other labourers rush to convert their first earnings into estates in the wilderness, several miles apart from one another? If they, by seizing on land, prevent the formation of a class of labourers for wages, he will not, by postponing the time of his becoming a proprietor, be enabled to employ the land with any greater advantage when he does obtain it; to what end therefore should he place himself in what will appear to him and others a position of inferiority, by remaining a whiredw labourer, when all around him are proprietors? It is the interest of each to do what is good for all, but only if others will do likewise.
The principle that each is the best judge of his own interest, understood as these objectors understand it, would prove that governments ought not to fulfil any of their acknowledged duties—ought not, in fact, to exist at all. It is greatly the interest of the community, collectively and individually, not to rob or defraud one another: but there is not the less necessity for laws to punish robbery and fraud; because, though it is the interest of each that nobody should rob or cheat, it xis notx any one’s interest to refrain from robbing and cheating others when all others are permitted to rob and cheat him. Penal laws exist at all, chiefly for this yreason—y because zeven anz unanimous opinion that a certain line of conduct is for the general interest, does not aalwaysa make it people’s individual interest to adhere to that line of conduct.
§ 13. [Case of acts done for the benefit of others than the persons concerned. Poor Laws] Fifthly; the argument against governmental interference grounded on the maxim that individuals are the best judges of their own interest, cannot apply to the very large class of cases, in which those acts of individuals awith which the government claims to interferea , are not done by those individuals for their own interest, but for the interest of other people. This includes, among other things, the important and much agitated subject of public charity. Though individuals should, in general, be left to do for themselves whatever it can reasonably be expected that they should be capable of doing, yet when they are at any rate not to be left to themselves, but to be helped by other people, the question arises whether it is better that they should receive this help exclusively from individuals, and therefore uncertainly and casually, or by systematic arrangements, in which society acts through its organ, the state.
This brings us to the subject of Poor Laws; a subject which would be of very minor importance if the habits of all classes of the people were temperate and prudent, and the diffusion of property satisfactory; but of the greatest moment in a state of things so much the reverse of this, in both points, as that which the British islands present.
Apart from any metaphysical considerations respecting the foundation of morals or of the social union, it will be admitted to be right that human beings should help one another; and the more so, in proportion to the urgency of the need: and none needs help so urgently as one who is starving. The claim to help, therefore, created by destitution, is one of the strongest which can exist; and there is primâ facie the amplest reason for making the relief of so extreme an exigency as certain to those who require it, as by any arrangements of society it can be made.
On the other hand, in all cases of helping, there are two sets of consequences to be considered; the consequences of the assistance itself, and the consequences of relying on the assistance. The former are generally beneficial, but the latter, for the most part, injurious; so much so, in many cases, as greatly to outweigh the value of the benefit. And this is never more likely to happen than in the very cases where the need of help is the most intense. There are few things for which it is more mischievous that people should rely on the habitual aid of others, than for the means of subsistence, and unhappily there is no lesson which they more easily learn. The problem to be solved is therefore one of peculiar nicety as well as importance; how to give the greatest amount of needful help, with the smallest encouragement to undue reliance on it.
Energy and self-dependence are, however, liable to be impaired by the absence of help, as well as by its excess. It is even more fatal to exertion to have no hope of succeeding by it, than to be assured of succeeding without it. When the condition of any one is so disastrous that his energies are paralyzed by discouragement, assistance is a tonic, not a sedative: it braces instead of bdeadeningb the active faculties: always provided that the assistance is not such as to dispense with self-help, by substituting itself for the person’s own labour, skill, and prudence, but is limited to affording him a better hope of attaining success by those legitimate means. This accordingly is a test to which all plans of philanthropy and benevolence should be brought, whether intended for the benefit of individuals or of classes, and whether conducted on the voluntary or on the government principle.
In so far as the subject admits of any general doctrine or maxim, it would appear to be this—that if assistance is given in such a manner that the condition of the person helped is as desirable as that of the person who succeeds in doing the same thing without help, the assistance, if c capable of being previously calculated on, is mischievous: but if, while available to everybody, it leaves to every one a strong motive to do without it if he can, it is then for the most part beneficial. This principle, applied to a system of public charity, is that of the Poor Law of 1834. If the condition of a person receiving relief is made as eligible as that of the labourer who supports himself by his own exertions, the system strikes at the root of all individual industry and self-government; and, if fully acted up to, would require as its supplement an organized system of compulsion, for governing and setting to work like cattle, those who had been removed from the influence of the motives that act on human beings. But if, consistently with guaranteeing all persons against absolute want, the condition of those who are supported by legal charity can be kept considerably less desirable than the condition of those who find support for themselves, none but beneficial consequences can arise from a law which renders it impossible for any person, except by his own choice, to die from insufficiency of food. That in England at least this supposition can be realized, is proved by the experience of a long period preceding the close of the last century, as well as by that of many highly pauperized districts in more recent times, which have been dispauperized by adopting strict rules of poor-law administration, to the great and permanent benefit of the whole labouring class. There is probably no country in which, by varying the means suitably to the character of the people, a legal provision for the destitute might not be made compatible with the observance of the conditions necessary to its being innocuous.
Subject to these conditions, I conceive it to be highly desirable, that the certainty of subsistence should be held out by law to the destitute able-bodied, rather than that their relief should depend on voluntary charity. In the first place, charity almost always does too much or too little: it lavishes its bounty in one place, and leaves people to starve in another. Secondly, since the state must necessarily provide subsistence for the criminal poor while undergoing punishment, not to do the same for the poor who have not offended is to give a premium on crime. And lastly, if the poor are left to individual charity, a vast amount of mendicity is inevitabled . What the state may and should abandon to private charity, is the task of distinguishing between one case of real necessity and another. ePrivate charity can give more to the more deserving.e The state must act by general rules. It cannot undertake to discriminate between the deserving and the undeserving indigent. It owes no more than subsistence to the first, and f can give no less to the last. What is said about the injustice of a law which has no better treatment for the merely unfortunate poor than for the ill-conducted, is founded on a misconception of the province of law and public authority. The dispensers of public relief have no business to be inquisitors. Guardians and overseers are not fit to be trusted to give or withhold other people’s money according to their verdict on the morality of the person soliciting it; and it would show much ignorance of the ways of mankind to suppose that such persons, even in the almost impossible case of their being qualified, will take the trouble of ascertaining and sifting the past conduct of a person in distress, so as to form a rational judgment on it. Private charity can make these distinctions; and in bestowing its own money, is entitled to do so according to its own judgment. It should understand that this is its peculiar and appropriate province, and that it is commendable or the contrary, as it exercises the function with more or g less discernment. But the administrators of a public fund ought not to be required to do more for anybody, than that minimum which is due even to the worst. If they are, the indulgence very speedily becomes the rule, and refusal the more or less capricious or tyrannical exception.
§ 14. [Case of acts done for the benefit of others. Colonization] Another class of cases which fall within the same general principle as the case of public charity, are those in which the acts done by individuals, though intended solely for their own benefit, involve consequences extending indefinitely beyond them, to interests of the nation or of posterity, for which society in its collective capacity is alone able, and alone bound, to provide. One of these cases is that of Colonization. If it is desirable, as no one will deny it to be, that the planting of colonies should be conducted, not with an exclusive view to the private interests of the first founders, but with a deliberate regard to the permanent welfare of the nations afterwards to arise from these small beginnings; such regard can only be secured by placing the enterprise, from its commencement, under regulations constructed with the foresight and enlarged views of philosophical legislators; and the government alone has power either to frame such regulations, or to enforce their observance.
The question of government intervention in the work of Colonization involves the future and permanent interests of civilization itself, and far outstretches the comparatively narrow limits of purely economical considerations. But even with a view to those considerations alone, the removal of population from the overcrowded to the unoccupied parts of the earth’s surface is one of those works of eminent social usefulness, which most require, and which at the same time best repay, the intervention of government.
To appreciate the benefits of colonization, it should be considered in its relation, not to a single country, but to the collective economical interests of the human race. The question is in general treated too exclusively as one of distribution; of relieving one labour market and supplying another. It is this, but it is also a question of production, and of the most efficient employment of the productive resources of the world. Much has been said of the good economy of importing commodities from the place where they can be bought cheapest; while the good economy of producing them where they can be produced cheapest, is comparatively little thought of. If to carry consumable goods from the places where they are superabundant to those where they are scarce, is a good pecuniary speculation, is it not an equally good speculation to do the same thing with regard to labour and instruments? The exportation of labourers and capital from old to new countries, from a place where their productive power is less, to a place where it is greater, increases by so much the aggregate produce of the labour and capital of the world. It adds to the joint wealth of the old and the new country, what amounts in a short period to many times the mere cost of effecting the transport. There needs be no hesitation in affirming that Colonization, in the present state of the world, is the a best affair of business, in which the capital of an old and wealthy country can b engage.
It is equally obvious, however, that Colonization on a great scale can be undertaken, as an affair of business, only by the government, or by some combination of individuals in complete understanding with the governmentc; except under such very peculiar circumstances as those which succeeded the Irish faminec . Emigration on the voluntary principle drarely hasd any material influence in lightening the pressure of population in the old country, though as far as it goes it is doubtless a benefit to the colony. Those labouring persons who voluntarily emigrate are seldom the very poor; they are small farmers with some little capital, or labourers who have saved something, and who, in removing only their own labour from the crowded labour-market, withdraw from the capital of the country a fund which maintained and employed more labourers than themselves. Besides, this portion of the community is so limited in number, that it might be removed entirely, without making any sensible impression upon the numbers of the population, or even upon the annual increase. Any considerable emigration of labour is only practicable, when its cost is defrayed, or at least advanced, by others than the eemigrantse themselves. Who then is to advance it? Naturally, it may be said, the capitalists of the colony, who require the labour, and who intend to employ it. But to this there is the obstacle, that a capitalist, after going to the expense of carrying out labourers, has no security that he shall be the person to derive any benefit from them. If all the capitalists of the colony were to combine, and bear the expense by subscription, they would still have no security that the labourers, when there, would continue to work for them. After working for a short time and earning a few pounds, they always, unless prevented by the government, squat on unoccupied land, and work only for themselves. The experiment has been repeatedly tried whether it was possible to enforce contracts for labour, or the repayment of the passage money of emigrants to those who advanced it, and the trouble and expense have always exceeded the advantage. The only other resource is the voluntary contributions of parishes or individuals, to rid themselves of surplus labourers who are already, or who are likely to become, locally chargeable on the poor-rate. Were this speculation to become general, it might produce a sufficient amount of emigration to clear off the existing unemployed population, but not to raise the wages of the femployedf : and the same thing would require to be done over again in less than another generation.
One of the principal reasons why Colonization should be a national undertaking, is that in this manner aloneg, save in highly exceptional cases,g can emigration be self-supporting. The exportation of capital and labour to a new country being, as before observed, one of the best of all affairs of business, it is absurd that it should not, like other affairs of business, repay its own expenses. Of the great addition which it makes to the produce of the world, there can be no reason why a sufficient portion should not be intercepted, and employed in reimbursing the outlay incurred in effecting it. For reasons already given, no individual, or body of individuals, can reimburse themselves for the expense; the government, however, can. It can take from the annual increase of wealth, caused by the emigration, the fraction which suffices to repay with interest what the emigration has cost. The expenses of emigration to a colony ought to be borne by the colony; and this, in general, is only possible when they are borne by the colonial government.
Of the modes in which a fund for the support of colonization can be raised in the colony, none is comparable in advantage to that which was first suggested, and h so ably and perseveringly advocated, by Mr. Wakefield: the plan of putting a price on all unoccupied land, and devoting the proceeds to emigration. The unfounded and pedantic objections to this plan have been answered in a former part of this chapter: we have now to speak of its advantages. First, it avoids the difficulties and discontents incident to raising a large annual amount by taxation; a thing which it is almost useless to attempt with a scattered population of settlers in the wilderness, who, as experience proves, can seldom be compelled to pay direct taxes, except at a cost exceeding their amount; while in an infant community indirect taxation soon reaches its limit. The sale of lands is thus by far the easiest mode of raising the requisite funds. But it has other and still greater recommendations. It is a beneficial check upon the tendency of a population of colonists to adopt the tastes and inclinations of savage life, and to disperse so widely as to lose all the advantages of commerce, of markets, of separation of employments, and combination of labour. By making it necessary for those who emigrate at the expense of the fund, to earn a considerable sum before they can become landed proprietors, it keeps up a perpetual succession of labourers for hire, who in every country are a most important auxiliary even to peasant proprietors: and by diminishing the eagerness of agricultural speculators to add to their domain, it keeps the settlers within reach of each other for purposes of co-operation, arranges a numerous body of them within easy distance of each centre of foreign commerce and non-agricultural industry, and insures the formation and rapid growth of towns and town products. This concentration, compared with the dispersion which uniformly occurs when unoccupied land can be had for nothing, greatly accelerates the attainment of prosperity, and enlarges the fund which may be drawn upon for further emigration. Before the adoption of the Wakefield system, the early years of all new colonies were full of hardship and difficulty: the last colony founded on the old principle, the Swan River settlement, being one of the most characteristic instances. In all subsequent colonization, the Wakefield principle has been acted upon, though imperfectly, i a part only of the proceeds jof the sale of landj being devoted to emigration: yet wherever it has been introduced at all, as in South Australia, kVictoriak , and New Zealand, the restraint put upon the dispersion of the settlers, and the influx of capital caused by the assurance of being able to obtain hired labour, has, in spite of many difficulties and much mismanagement, produced a suddenness and rapidity of prosperity more like fable than reality.l*
The self-supporting system of colonization, once established, would increase in efficiency every year; its effect would tend to increase in geometrical progression: for since every able-bodied emigrant, until the country is fully peopled, adds in a very short time to its wealth, over and above his own consumption, as much as would defray the expense of bringing out another emigrant, it follows that the greater the number already sent, the greater number might continue to be sent, each emigrant laying the foundation of a succession of other emigrants at short intervals without fresh expense, until the colony is filled up. It would therefore be worth while, to the mother country, to accelerate the early stages of this progression, by loans to the colonies for the purpose of emigration, repayable from the fund formed by the sales of land. In thus advancing the means of accomplishing a large immediate emigration, it would be investing that amount of capital in the mode, of all others, most beneficial to the colony; and the labour and savings of these emigrants would hasten the period at which a large sum would be available from sales of land. It would be necessary, in order not to overstock the labour market, to act in concert with the persons disposed to remove their own capital to the colony. The knowledge that a large amount of hired labour would be available, in so productive a field of employment, would insure a large emigration of capital from a country, like England, of low profits and rapid accumulation: and it would only be necessary not to send out a greater number of labourers at one time, than this capital could absorb and employ at high wages.
Inasmuch as, on this system, any given amount of expenditure, once incurred, would provide not merely a single emigration, but a perpetually flowing stream of emigrants, which would increase in breadth and depth as it flowed on; this mode of relieving overpopulation has a recommendation, not possessed by any other plan ever proposed for making head against the consequences of increase without restraining the increase itself: there is an element of indefiniteness in it; no one can perfectly foresee how far its influence, as a vent for surplus population, might possibly reach. There is hence the strongest obligation on the government of a country like our own, with a crowded population, and unoccupied continents under its command, to build, as it were, and keep open, min concert with the colonial governments,m a bridge from the mother country to those continents, by establishing the self-supporting system of colonization on such a scale, that as great an amount of emigration as the colonies can at the time accommodate, may at all times be able to take place without cost to the emigrants themselves.
nThe importance of these considerations , o as regards the British islands, phas been of latep considerably diminished by the unparalleled amount of spontaneous emigration from Ireland; an emigration not solely of small farmers, but of the poorest class of agricultural labourers, and which is at once voluntary and self-supporting, the succession of emigrants being kept up by funds contributed from the earnings of their relatives and connexions who qhadq gone before. rTo this has been added a large amount of voluntary emigration to the seats of the gold discoveries, which has partly supplied the wants of our most distant colonies, where, both for local and national interests, it was most of all required. But the stream of both these emigrations has already considerably slackened, andsthough that from Ireland has since partially revived,stit is not certaint that the aid of government in a systematic form, and on the self-supporting principle, uwill not again becomeu necessary to keep the communication open between the hands needing work in England, and the work which needs hands elsewhere.rn
§ 15. [Case of acts done for the benefit of others. Miscellaneous examples] The same principle which points out colonization, and the relief of the indigent, as cases to which the principal objection to government interference does not apply, extends also to a variety of cases, in which important public services are to be performed, while yet there is no individual specially interested in performing them, nor would any adequate remuneration naturally or spontaneously attend their performance. Take for instance a voyage of geographical or scientific exploration. The information sought may be of great public value, yet no individual would derive any benefit from it which would repay the expense of fitting out the expedition; and there is no mode of intercepting the benefit on its way to those who profit by it, in order to levy a toll for the remuneration of its authors. Such voyages are, or might be, undertaken by private subscription; but this is a rare and precarious resource. Instances are more frequent in which the expense has been borne by public companies or philanthropic associations; but in general such enterprises have been conducted at the expense of government, which is thus enabled to entrust them to the persons in its judgment best qualified for the task. Again, it is a proper office of government to build and maintain lighthouses, establish buoys, &c. for the security of navigation: for since it is impossible that the ships at sea which are benefited by a lighthouse, should be made to pay a toll on the occasion of its use, no one would build lighthouses from motives of personal interest, unless indemnified and rewarded from a compulsory levy made by the state. There are many scientific researches, of great value to a nation and to mankind, requiring assiduous devotion of time and labour, and not unfrequently great expense, by persons who can obtain a high price for their services in other ways. If the government had no power to grant indemnity for expense, and remuneration for time and labour thus employed, such researches could only be undertaken by the very few persons who, with an independent fortune, unite technical knowledge, laborious habits, and either great public spirit, or an ardent desire of scientific celebrity.
aConnected with this subject is the question of providing, by means of endowments or salaries, for the maintenance of what has been called a learned class. The cultivation of speculative knowledge, though one of the most useful of all employments, is a service rendered tobab community collectively, not individually, and one cconsequently for whichc it is, primâ facie, reasonable that the community collectively should pay; since it gives no claim on any individual for a pecuniary remuneration; and unless a provision is made for such services from some public fund, there is not only no encouragement to them, but there is as much discouragement as is implied in the impossibility of gaining a living by such pursuits, and the necessity consequently imposed on most of those who would be capable of them, to employ the greatest part of their time in gaining a subsistence. The evil, however, is greater in appearance than in reality. The greatest things, it has been said, have generally been done by those who had the least time at their disposal; and the occupation of some hours every day in a routine employment, has often been found compatible with the most brilliant achievements in literature and philosophy. Yet there are investigations and experiments which require not only a long but a continuous devotion of time and attention: there are also occupations which so engross and fatigue the mental faculties, as to be inconsistent with any vigorous employment of them upon other subjects, even in intervals of leisure. It is highly desirable, therefore, that there should be a mode of insuring to the public the services of scientific discoverers, and perhaps of some other classes of savants, by affording them the means of support consistently with devoting a sufficient portion of time to their peculiar pursuits. The fellowships of dthed Universities are an institution excellently adapted for such a purpose; but are hardly ever applied to it, being bestowed, at the best, as a reward for past proficiency, in committing to memory what has been done by others, and not as the salary of future labours in the advancement of knowledge. In some countries, Academies of science, antiquities, history, &c., have been formed, with emoluments annexed. The most effectual plan, and at the same time e least liable to abuse, seems to be that of conferring Professorships, with duties of instruction attached to them. The occupation of teaching a branch of knowledge, at least in its higher departments, is a help rather than an impediment to the systematic cultivation of the subject itself. The duties of a professorship almost always leave much time for original researches; and the greatest advances which have been made in the various sciences, both moral and physical, have originated with those who were public teachers of them; from fPlato and Aristotlef to the great names of the Scotch, French, and German Universities. I do not mention the English, because guntil very latelyg their professorships hhave beenh , as is well known, little more than nominal. In the case, too, of a lecturer in a great institution of education, the public at large has the means of judging, if not the quality of the teaching, at least the talents and industry of the teacher; and it is more difficult to misemploy the power of appointment to such an office, than to job in pensions and salaries to persons not so directly before the public eye.a
It may be said generally, that anything which it is desirable should be done for the general interests of mankind or of future generations, or for the present interests of those members of the community who require external aid, but which is not of a nature to remunerate individuals or associations for undertaking it, is in itself a suitable thing to be undertaken by government: though, before making the work their own, governments ought always to consider if there be any rational probability of its being done on what is called the voluntary principle, and if so, whether it is likely to be done in a better or more effectual manner by government agency, than by the zeal and liberality of individuals.
§ 16. [Government intervention may be necessary in default of private agency, in cases where private agency would be more suitable] The preceding heads comprise, to the best of my judgment, the whole of the exceptions to the practical maxim, that the business of society can be best performed by private and voluntary agency. It is, however, necessary to add, that the intervention of government cannot always practically stop short at the limit which defines the cases intrinsically suitable for it. In the particular circumstances of a given age or nation, there is scarcely anything really important to the general interest, which it may not be desirable, or even necessary, that the government should take upon itself, not because private individuals cannot effectually perform it, but because they will not. At some times and places, there will be no roads, docks, harbours, canals, works of irrigation, hospitals, schools, colleges, printing-presses, unless the government establishes them; the public being either too poor to command the necessary resources, or too little advanced in intelligence to appreciate the ends, or not sufficiently practised in ajointa action to be capable of the means. This is true, more or less, of all countries inured to despotism, and particularly of those in which there is a very wide distance in civilization between the people and the government: as in those which have been conquered and are retained in subjection by a more energetic and more cultivated people. In many parts of the world, the people can do nothing for themselves which requires large means and combined action: all such things are left undone, unless done by the state. In these cases, the mode in which the government can most surely demonstrate the sincerity with which it intends the greatest good of its subjects, is by doing the things which are made incumbent on it by the helplessness of the public, in such a manner as shall tend not to increase and perpetuate, but to correct, that helplessness. A good government will give all its aid in such a shape, as to encourage and nurture any rudiments it may find of a spirit of individual exertion. It will be assiduous in removing obstacles and discouragements to voluntary enterprise, and in giving whatever facilities and whatever direction and guidance may be necessary: its pecuniary means will be bappliedb , when practicable, in aid of private efforts rather than in supersession of them, and it will call into play its machinery of rewards and honours to elicit such efforts. Government aid, when given merely in default of private enterprise, should be so given as to be as far as possible a course of education for the people in the art of accomplishing great objects by individual energy and voluntary co-operation.
I have not thought it necessary here to insist on that part of the functions of government which all admit to be indispensable, the function of prohibiting and punishing such conduct on the part of individuals in the exercise of their freedom, as is clearly injurious to other persons, whether the case be one of force, fraud, or negligence. Even in the best state which society has yet reached, it is lamentable to think how great a proportion of all the efforts and talents in the world are employed in merely neutralizing one another. It is the proper end of government to reduce this wretched waste to the smallest possible amount, by taking such measures as shall cause the energies now spent by mankind in injuring one another, or in protecting themselves against injury, to be turned to the legitimate employment of the human faculties, that of compelling the powers of nature to be more and more subservient to physical and moral good.
[a-a]48, 49, 52, 57 propositions
[b-b]48, 49 is decidedly
[c-c]+49, 52, 57, 62, 65, 71
[a-a]48, 49, 52 he has a claim to do as he likes, without being molested or restricted by judges and legislators
[b-b]48, 49, 52, 57, 62, 65 cases [printer’s error?]
[c-c]48, 49 ; his mind, or his circumstances, may have altered; or not even that, since the omission to perform may be a mere case of neglect
[d]48, 49 would
[e-e]48, 49 was
[f-f]48, 49 varied
[g-g]48, 49 had
[h-h]48, 49 is not the decision of disputes another?
[i-i]48, 49 may devolve
[j-j]48, 49 power
[a-a]48, 49 Of
[* ]Wealth of Nations, book v. ch. ii. [Vol. IV, pp. 215-8.]
[b-b]Source, 48, 49, 52 the
[c-c]48 any improvement
[d-d]48, 49, 52, 57 process
[a-a]48 person and
[c-c]48, 49 is
[d-d]48, 49, 52, 57 not to recognize it and make
[a-a]48, 49 an income ordinarily sufficient to provide a moderately numerous labouring family
[b-b]48, 49, 52 indulgences
[* ] This principle of assessment has been partially adopted by Mr. Gladstone in renewing [65 at the last renewal of] the income-tax. From 100l., at which the tax begins, up to 200l., the income only pays tax on the excess above 60l.
[c-c]48, 49 a labouring family ought to have
[d]48, 49 indirect
[e-e]48, 49, 52, 57 An
[f-f]48, 49 To tax all incomes in an equal ratio, would be unjust to those, the greater part of whose income is required for necessaries; but I can see no fairer standard of real equality than to take from all persons, whatever may be their amount of fortune, the same arithmetical proportion of their superfluities.
[g-g]48, 49 this
[h-h]+52, 57, 62, 65, 71
[i]48, 49 still more
[j-j]48, 49 impair the motives on which society depends for keeping up (not to say increasing) the produce of its labour and capital
[k-k]48, 49 partial taxation, which is a mild form of robbery
[l]48, 49 scrupulously
[m-m]48, 49 opposing obstacles to the acquisition of even the largest fortune by
[n-n]48, 49 that, whether they were swift or slow, all should reach the goal at once
[o-o]48, 49 and it is the part of a good government to provide, that, as far as more paramount considerations permit, the inequality of opportunities shall be remedied. When all kinds of useful instruction shall be as accessible as they might be made, and when the cultivated intelligence of the poorer classes, aided so far as necessary by the guidance and co-operation of the state, shall obviate, as it might so well do, the major part of the disabilities attendant on poverty, the inequalities
[p-p]52, 57 remedy
[q]48, 49 is as much a part of the right of property as the power of using: that is not in the fullest sense a person’s own, which he is not free to bestow on others. But this
[* ]Supra, book ii. ch. 2. [48 ch. 1.] [Pp. 215-34.]
[r-r]48, 49, 52, 57, 62 the most eligible
[s-s]48, 49 a violation of first principles, is quite unobjectionable
[t-t]52, 57 is
[u-u]48, 49 (it should rather be said)
[v-v]48, 49 on the owner’s account
[w-w]48, 49 almost every
[x-x]+62, 65, 71
[a]48, 49 somewhat
[b-b]+62, 65, 71
[c-c]48, 49, 52, 57 sevenpence] 62 sevenpence (now ninepence)] 65 sevenpence (now sixpence)
[d-d]48, 49, 52 landowner
[e-e]81448 But almost every one feels that this answer does not touch the real grievance; for in
[g-g]+57, 62, 65, 71
[h-h]+62, 65, 71
[i-i]49, 52, 57 feelings and necessities
[j-j]+52, 57, 62, 65, 71
[k-k]52, 57 wants
[m-m]48, 49, 52, 57, 62, 65 proportionally
[n-n]48 : and the plea ordinarily urged in vindication of its justice, that when the income ceases the tax ceases, would no longer be maintainable.
[o-o]+52, 57, 62, 65, 71
[p-p]52, 57 A’s
[q]48, 49 his
[r]48, 49 I say really applied, because (as before remarked in the case of an income not more than sufficient for subsistence) an exemption grounded on an assumed necessity, ought not to be claimable by any one who practically emancipates himself from the necessity. One expedient might be, that the Income-Tax Commissioners should allow, as a deduction from income, all bonâ fide payments for insurance on life. This, however, would not provide for the case which most of all deserves consideration, that of persons whose lives are not insurable; nor would it include the case of savings made as a provision for age. The latter case might, perhaps, be met by allowing as a deduction from income all payments made in the purchase of deferred annuities; and the former by remitting income-tax on sums actually settled, and on sums paid into the hands of a public officer, to be invested in securities, and repaid only to the executor or administrator: the tax so remitted, with interest from the date of deposit, being retained (for the prevention of fraud) as a first debt chargeable on the deposit itself, before other debts could be paid out of it; but not demanded if satisfactory proof were given that all debts had been paid from other resources. I throw out these suggestions for the consideration of those whose experience renders them adequate judges of practical difficulties.] 52 [footnote:] *I say . . . as text of 48 . . . difficulties.] 57 as 52 . . . resources. (In the Income-Tax Act, as renewed and modified by Mr. Gladstone in 1853, the first two of these suggestions have been acted on.)
[s-s]81748, 49 [no paragraph] It is highly probable that there may be better modes of attaining the object. If no plan be found practicable by which the exemption can be confined to the portion of income actually saved, there still remains
[u-u]52 consistently [printer’s error?]
[v-v]+62, 65, 71
[* ] Mr. Hubbard, the first person who, as a practical legislator, has attempted the rectification of the income tax on principles of unimpeachable justice, and whose well-conceived plan wants little of being as near an approximation to a just assessment as it is likely that means could be found of carrying into practical effect, proposes a deduction not of a fourth but of a third, in favour of industrial and professional incomes. He fixes on this ratio, on the ground that, independently of all consideration as to what the industrial and professional classes ought [62 ought] to save, the attainable evidence goes to prove that a third of their incomes is what on an average they do [62 do] save, over and above the proportion saved by other classes. “The savings” (Mr. Hubbard observes) “effected out of incomes derived from invested property are estimated at one-tenth. The savings effected out of industrial incomes are estimated at four-tenths. The amounts which would be assessed under these two classes being nearly equal, the adjustment is simplified by striking off one-tenth on either side, and then reducing by three-tenths, or one-third, the assessable amount of industrial incomes.” Proposed Report (p. xiv. of the Report and Evidence of the Committee of 1861 [Parliamentary Papers, 1861, VII]). In such an estimate there must be a large element of conjecture; but in so far as it can be substantiated, it affords a valid ground for the practical conclusion which Mr. Hubbard founds on it.
[w-w]48, 49 one-half, perhaps
[x-x]48, 49 other half
[y-y]48, 49 ; depending therefore
[z-z]81948, 49 . For profits, therefore, an intermediate rate might be adopted, one-half of the net income being taxed on the higher scale, and the other half on the lower.
[a-a]48, 49 since
[b-b]48, 49 impossibility
[a-a]48, 49, 52, 57 principles
[b-b]48, 49, 52, 57 a
[c-c]48, 49 possibility
[d-d]48, 49, 52 every shadow of
[a-a]48, 49 time immemorial
[b-b]48, 49 originally
[* ] The same remarks obviously apply to those local taxes, of the peculiar pressure of which on landed property so much has been said [49 of late] by the remnant of the Protectionists. As much of these burthens as is of old standing, ought to be regarded as a prescriptive deduction or reservation, for public purposes, of a portion of the rent. And any recent additions have either been incurred for the benefit of the owners of landed property, or occasioned by their fault: in neither case giving them any just ground of complaint.
[a-a]48, 49 The
[b-b]48, 49, 52, 57 source
[a-a]48, 49, 52 , does not apply
[b-b]48, 49, 52 merely pays its just share
[a-a]48, 49 of
[b-b]48, 49, 52 speculations
[c-c]57 country [printer’s error?]
[a-a]48, 49, 52, 57 turn now
[b]48, 49, 52 a
[* ]Supra, vol. i. pp. 78-88.
[c-c]+52, 57, 62, 65, 71
[d-d]48, 49 the proofs formerly given
[e-e]48, 49 Almost all these
[f-f]+52, 57, 62, 65, 71
[a-a]48, 49, 52 those
[b-b]48, 49 a labouring family of moderate numbers
[c-c]48, 49, 52 150l.
[d-d]48, 49, 52 is
[f-f]48, 49, 52 some taxes on necessaries are still kept up, and that almost all the existing taxes on indulgences
[g-g]48, 49 life incomes
[h-h]48, 49 . Fourthly, that incomes which are jointly the result of capital and of personal exertion, should be taxed intermediately between the rate for inheritable and that for life incomes.
[i-i]48, 49 which, with much regret, I cannot help regarding as insuperable
[j-j]48, 49, 52, 57, 62 interests
[k-k]48, 49 doubt
[l-l]48, 49 circumstances
[m-m]48, 49, 52, 57 are often
[n-n]48, 49 can never
[o]48, 49 minor
[p]48, 49 lately
[* ]“A Percentage Tax on Domestic Expenditure to supply the whole of the Public Revenue.” By John Revans. Published [London] by Hatchard, in 1847.
[q]48, 49, 52, 57, 62, 65 on
[a-a]48, 49, 52, 57 these
[b-b]48, 49 (at least of the more expensive class)
[c-c]48, 49 thrown upon
[d-d]48, 49, 52 At first sight one would be inclined to suppose the case to be
[e-e]48, 49, 52 And such would really be the case, if with the tax on ground-rent there were
[f]48, 49, 52 ; but not otherwise
[i]48, 49 quite
[j-j]48, 49 put a stop to
[k-k]48, 49 wearing out
[l]48, 49 precisely
[m-m]48, 49, 52 There is thus no difference between the two component elements of house-rent, in respect to the incidence of the tax. Both alike fall ultimately on the occupier: while, in both alike, if the occupier in consequence reduces his demand by contenting himself with inferior accommodation, that is, if he prefers saving his tax from house-rent to saving it from other parts of his expenditure, he indirectly lowers ground-rent, or retards its increase; just as a diminished consumption of agricultural produce, by making cultivation retrograde, would lower ordinary rent.
[n-n]+57, 62, 65, 71
[o-o]48, 49, 52, 57 To the equality of this tax, there are but two decided objections.
[p-p]48, 49 this, though a real, is not a great defect; for there are few misers; and as they
[q-q]48, 49 employments in which it feeds productive labourers, and
[r-r]48, 49 the inconvenience of its paying no taxes of its own is in some degree compensated for
[* ] Another common objection is that large and expensive accommodation is often required, not as a residence, but for business. But it is an admitted principle that buildings or portions of buildings occupied exclusively for business, such as shops, warehouses, or manufactories, ought to be exempted from house-tax. The plea that persons in business may be compelled to live in situations, such as the great thoroughfares of London, where house-rent is at a monopoly rate, seems to me unworthy of regard: since no one does so but because the extra profit which he expects to derive from the situation, is more than an equivalent to him for the extra cost.  But in any case, the bulk of the tax on this extra rent will not fall on him, but on the ground-landlord.
[s-s]48, 49 Though the house-tax which formerly existed in this country has been repealed, a large
[t-t]48, 49, 52 the
[u]48, 49 still
[v-v]48, 49 ; the
[w-w]48, 49 consisting
[x-x]48, 49 is
[y-y]48, 49 . It would be a most advantageous exchange to abolish the window-tax and the present income-tax, and replace them by a house-tax of equivalent amount. In doing so, it would be necessary to avoid
[z]48, 49 in 1834
[a-a]+62, 65, 71
[b-b]48, 49, 52, 57 it
[c-c]+57, 62, 65, 71
[d-d]48, 49 corrected each year
[a-a]48, 49, 52, 57 commodity [printer’s error?]
[b-b]48, 49 to be absolutely the same, must
[* ] It is true, this does not constitute, as at first sight it appears to do, a case of taking more out of the pockets of the people than the state receives; since if the state needs the advance, and gets it in this manner, it can dispense with an equivalent amount of borrowing in stock or exchequer bills. But it is more economical that the necessities of the state should be supplied from the disposable capital in the hands of the lending class, than by an artificial addition to the expenses of one or several classes of producers or dealers.
[a-a]48, 49, 52 enables
[b-b]48, 49, 52, 57, The rise of price occasioned
[a-a]48, 49 reduces them
[b-b]48, 49 settle
[c-c]48, 49 fertility
[d-d]48, 49 you
[e-e]+49, 52, 57, 62, 65, 71
[g-g]48, 49 rise,
[a-a]48, 49, 52, 57, 62 from
[b-b]48, 49 no longer be
[c-c]48, 49 risen to
[e-e]+52, 57, 62, 65, 71
[f-f]+57, 62, 65, 71
[h-h]+52, 57, 62, 65, 71
[i-i]48, 49 or
[j-j]48, 49, 52, 57, 62 was
[k-k]48, 49, 52, 57, 62 the
[l]48, 49 late
[m-m]+57, 62, 65, 71
[n-n]+52, 57, 62, 65, 71
[a-a]48, 49 left to themselves, they generally
[b-b]48, 49, 52, 57, 62, 65 that
[c-c]48, 49 any other tax
[d-d]48, 49 accustomed to submit
[e-e]48, 49, 52, 57 recently
[f]48, 49 at its present rate
[g-g]48, 49, 52, 57 may extend
[h-h]48, 49, 52, 57 extension
[i-i]48, 49 imposed] 52, 57 imposed until lately
[a-a]52, 57 it
[b-b]Source, 48, 49, 52 will
[* ]Probably the strongest known instance of a large revenue raised from foreigners by a tax on exports, is the opium trade with China. The high price of the article under the Government monopoly (which is equivalent to a high export duty) has so little effect in discouraging its consumption, that it is said to have been occasionally sold in China for as much as its weight in silver.
[[*] ]Mill, J. S. Essays on Some Unsettled Questions, pp. 21-7.
[c-c]48, 49, 52, 57, 62 for
[[*] ]Mill, J. S. Essays on Some Unsettled Questions, pp. 27-9.
[a-a]48, 49 when the contract relates to property the tax rises, though in an irregular manner, with the pecuniary value of the property
[b-b]48, 49, 52, 57, 62, 65 these [printer’s error?]
[c]48, 49, 52 very
[* ] The statement in the text requires modification in the case of countries where the land is owned in small portions. These, being neither a badge of importance, nor in general an object of local attachment, are readily parted with at a small advance on their original cost, with the intention of buying elsewhere; and the desire of acquiring land even on disadvantageous terms is so great, as to be little checked by even a high rate of taxation.
[d-d]48, 49, 52, 57, 62 always
[e-e]48, 49 probably a person
[f]48, 49 [footnote:] *In our own country, the taxes on contracts are the more objectionable, because, with that tendency to spare the rich which pervades our financial system, they are proportionally much heavier on the smaller transactions. Many stamp duties do not profess to be ad valorem, but are fixed charges, whether the amount of the transaction be great or small. With respect to those which do pretend to be ad valorem; “of the stamps on conveyances, the lowest, which attaches where the purchase money does not amount to 20l., is 10s.; where the purchase money amounts to 20l. and not to 50l., 1l.; where 50l., and not amounting to 150l., 1l. 10s.; and there are twenty-three other enumerated stamps, rising in amount by unequal steps, the highest being 1000l., where the purchase money is 100,000l., beyond which, however high the purchase money may rise, the tax does not increase. . . . In the case of a 20l. purchase of freehold, the duty is 2l., or 10 per cent on the value; while on the 200,000l. or 300,000l. purchase (as on all conveyances of 150l. and upwards), the stamp is only 1l. 15s., a fraction of the value too inconsiderable to deserve notice. It often happens also in conveyances of properties of small amount, that besides this conveyance, other deeds are required, as assignments or surrenders of terms, and covenants for the production of title deeds: and the stamps on these deeds are the same whether the purchase is 20l. or 20,000l.” In the stamp duties on bonds and mortgages, the inequality is still more glaring; the rate ad valorem being “eighty times as great on the security for 50l. as on that for 100,000l.” —M’Culloch on Taxation, [McCulloch, John R. A Treatise on the Principles and Practical Influence of Taxation and the Funding System. London: Longman, Brown, Green, and Longmans, 1845,] pp. 277-80. And in another place, “The stamp duties in their present form wholly want that compensating quality which has often been ascribed to them (and with which they might be endowed) of giving increased security to transactions. On the contrary, one would think they had been intended to serve as decoys with which to entrap parties, and force them into the courts. The difficulty which they create of determining what is and what is not a proper stamp, is itself a most prolific source of uncertainty, and consequently of litigation and expense.” (p. 276[-7].) We may well add, with the same writer, (p. 281) “it will be curious to see how long the present system will be permitted to continue.”
[g-g]48, 49, 52, 57, 62, 65 tax
[h]48, 49, 52, 62 In the case of fire insurances, the tax is exactly double the amount of the premium of insurance on common risks; so that the person insuring is obliged by the government to pay for the insurance just three times the value of the risk. If this tax existed in France, we should not see, as we do in some of her provinces, the plate of an insurance company on almost every cottage or hovel. This, indeed, must be ascribed to the provident and calculating habits produced by the dissemination of property through the labouring class: but a tax of so extravagant an amount would be a heavy drag upon any habits of providence.] 65 as 48 . . . the tax was until lately in all cases, and still is in most cases, exactly . . . as 48
[a-a]48, 49, 52 the tax
[b]48, 49, 52 that
[c]48, 49 very
[d-d]+52, 57, 62, 65, 71
[e-e]48, 49, 52, 57, 62, 65 A
[f-f]48, 49, 52, 57, 62, 65 is
[g]48, 49 In this country the amount of the duty is moderate, and the abuse of advertising, which is quite as conspicuous as the use, renders the abolition of the tax, though right in principle, a matter of less urgency than it might otherwise be deemed.
[h]48, 49, 52, 57 now
[i-i]48, 49 do so little, and generally attempt so little, in
[j-j]48, 49 those ideas; in correcting many prejudices and superstitions, and keeping up that
[l-l]48, 49 ideas
[m]48, 49 , as it were, out of itself,
[a-a]48, 49 belonging to them
[b-b]48, 49 beyond
[a]48, 49 rather
[b-b]48, 49 detests
[c-c]48, 49, 52, 57, 62 two shillings
[d-d]48, 49, 52, 57, 62 three
[e-e]48, 49 “ignorant impatience”
[f-f]48, 49 odious
[g]48, 49 , too much stress, I cannot but think, is laid on it: for, in the first place
[h]48, 49 progressive
[i]48, 49 , therefore,
[j-j]48, 49 will not continue to make
[k-k]48, 49 this
[l-l]48, 49, 52 above fifty] 57 above sixty] 62 above seventy
[m-m]48, 49 intense
[n]48, 49 it may be doubted if
[o-o]48, 49 would not produce more evil than
[p-p]48, 49, 52 fifty] 57 sixty
[q-q]48, 49 capital
[r-r]86648 is still, in many cases, unnecessarily profuse, but though many of the items will bear great reduction, others certainly require increase. There is hardly any public reform or improvement of the first rank, proposed of late years, and still remaining to be effected, which would not probably require, at least for a time, an increased instead of a diminished appropriation of public money.] 49 as 48 . . . but though the total amount will . . . reduction, many items certainly . . . as 48
[s-s]+62, 65, 71
[t]52 the largest
[u]52, 57 so
[v]48, 49 popular
[w-w]48, 49 emigration and colonization; a more efficient and accessible administration of justice; a more judicious treatment of criminals; improvement in the condition of soldiers and sailors; a more effective police;
[x]52, 57, 62 ; emigration and colonization
[y]48, 49 , finally,
[z-z]48, 49 highly-educated
[b-b]+52, 57, 62, 65, 71
[c-c]52, 57, 62, 65 be more than
[d-d]48, 49 I fear that we should have to wait long for most of these things, if taxation were as odious as it probably would be if it were exclusively direct.
[f-f]48, 49 a real
[g-g]+52, 57, 62, 65, 71
[h-h]48, 49 decisive
[i-i]+52, 57, 62, 65, 71
[j-j]48, 49 I have pointed out that the burthen can never
[k-k]48, 49 a business or profession
[l-l]48, 49, 52, 57 consequently
[m-m]+52, 57, 62, 65, 71
[n-n]48, 49 inseparable from every practicable form of
[* ]Some argue that the materials and instruments of all production should be exempt from taxation; but these, when they do not enter into the production of necessaries, seem as proper subjects of taxation as the finished article. It is chiefly with reference to foreign trade, that such taxes have been considered injurious. Internationally speaking, they may be looked upon as export duties, and, unless in cases in which an export duty is advisable, they should be accompanied with an equivalent drawback on exportation. But there is no sufficient reason [48 no reason] against taxing the materials and instruments used in the production of anything which is itself a fit object of taxation.
[a-a]48, 49, 52, 57, 62, 65 expense
[b-b]48, 49, 52 would really be
[c-c]48, 49, 52 would be
[d-d]48, 49, 52 would lose
[* ]“Were we to suppose that diamonds could only be procured from one particular and distant country, and pearls from another, and were the produce of the mines in the former, and of the fishery in the latter, from the operation of natural causes, to become doubly difficult to procure, the effect would merely be that in time half the quantity of diamonds and pearls would be sufficient to mark a certain opulence and rank, that it had before been necessary to employ for that purpose. The same quantity of gold, or some commodity reducible at last to labour, would be required to produce the now reduced amount, as the former larger amount. Were the difficulty interposed by the regulations of legislators . . . . . it could make no difference to the fitness of these articles to serve the purposes of vanity.” Suppose that means were discovered whereby the physiological process which generates the pearl might be induced ad libitum, the result being that the amount of labour expended in procuring each pearl, came to be only the five hundredth part of what it was before. “The ultimate effect of such a change would depend on whether the fishery were free or not. Were it free to all, as pearls could be got simply for the labour of fishing for them, a string of them might be had for a few pence. The very poorest class of society could therefore afford to decorate their persons with them. They would thus soon become extremely vulgar and unfashionable, and so at last valueless. If however we suppose that instead of the fishery being free, the legislator owns and has complete command of the place, where alone pearls are to be procured; as the progress of discovery advanced, he might impose a duty on them equal to the diminution of labour necessary to procure them. They would then be as much esteemed as they were before. What simple beauty they have would remain unchanged. The difficulty to be surmounted in order to obtain them would be different, but equally great, and they would therefore equally serve to mark the opulence of those who possessed them.” The net revenue obtained by such a tax “would not cost the society anything. If not abused in its application, it would be a clear addition of so much to the resources of the community.”—Rae, New Principles of Political Economy, pp. 369-71.
[a]48, 49 and as beneficial
[b-b]48, 49, 52, 57 Among
[c-c]48, 49, 52 now] 57 now or lately
[d-d]48, 49, 52, 57 some must, on the principles we have laid down, be altogether condemned
[e]65 [footnote:] *Except the shilling per quarter duty on corn, ostensibly for registration and scarcely felt as a burthen.
[f-f]48, 49 bricks and timber, the former as being vexatious, and both
[g-g]48, 49, 52 the tax] 57 the (now abolished) tax
[h-h]+52, 57, 62, 65, 71
[i]48, 49, 52, 57 : but ornamental paper, for hangings, and similar purposes, might continue to be taxed
[j-j]+62, 65, 71
[k-k]48, 49, 52, 57 the greatest part
[l-l]48, 49, 52, 57 an enormous
[m-m]48, 49, 52 would
[a-a]48, 49 been already
[* ]Supra, vol. i. pp. 77-8.
[b]48, 49, 52, 57 there
[c-c]48, 49, 52 those
[d-d]+57, 62, 65, 71
[e-e]48, 49 late] 52 last
[f]48, 49, 52 last
[g-g]48, 49, 52 cannot be relieved from the severest condemnation
[h-h]48, 49, 52 at all less indefensible
[i-i]+57, 62, 65, 71
[j]48, 49, 52 , in every respect,
[k]48, 49, 52 , by the whole of that great fact,
[l-l]+57, 62, 65, 71
[m-m]+49, 52, 57, 62, 65, 71
[n-n]48, 49 an improving country
[a-a]49 it is [printer’s error?]
[b-b]48, 49, 52, 57 practicable it would be
[c]48, 49, 52, 57 an
[d-d]48, 49, 52 or
[e]48, 49 specious
[f-f]48, 49 We are at liberty to assume that the general financial system of the country takes
[g]48, 49 ; but let not principles, admitted in theory, be wounded mortally by a back-handed blow
[a-a]48, 49, 52, 57 not
[b]48, 49, 52, 57 present
[c-c]48, 49, 52 taxes on legacies and inheritances
[d-d]+49, 52, 57, 62, 65, 71
[e-e]48, 49, 52, 57 and I should think none
[* ]Supra, vol. i. pp. 113-4.
[a-a]48, 49 habitually exposed
[a]48, 49 but
[b]48, 49 that which is made
[c-c]48, 49 since
[d]48, 49 injurious
[a]48, 49 a
[b-b]48, 49 so far as integrity is concerned
[c-c]48, 49, 52 is] 57, 62 has hitherto been
[d-d]+57, 62, 65, 71
[e-e]+49, 52, 57, 62, 65, 71
[* ] Lord Westbury’s recent Act is a material mitigation of this grievous defect in English law, and will probably lead to further improvements.
[* ]Supra, vol. i. pp. 109-11.
[g-g]48, 49 requires no comment
[a]48, 49 I cannot, therefore, select topics more suitable to be touched upon in the present treatise.
[b-b]48, 49 part of this work
[c]48, 49 in themselves,
[d]48, 49 less eligible in itself, but better adapted to existing feelings and ideas,
[e-e]+52, 57, 62, 65, 71
[f-f]48, 49 in which
[g-g]48, 49, 52, 57 some
[h]48, 49 one
[i-i]48, 49, 52, 57, 62, 65 successors
[j-j]+62, 65, 71
[k-k]+49, 52, 57, 62, 65, 71
[l-l]48, 49 so far as the second is desirable
[m-m]48, 49 is the subject of the present treatise
[a-a]48, 49 That it should be necessary to inflict this great evil on the eldest son, from sheer want of knowing what else to do with a large fortune, is surely the most arbitrarily conjured up of all embarrassments.
[b-b]52 is not
[c-c]Source, 48, 49, 52 situation
[* ]Principles of Political Economy, ed. 1843, p. 264. There is much more to [48 much to] the same effect in the more recent treatise by the same author, “On the Succession to Property vacant by Death.”
[d-d]48, 49, 52, 57 will not
[e-e]48, 49 industry
[f]48, 49 any of
[g]48, 49 greatly
[h]48, 49 great
[i-i]+52, 57, 62, 65, 71
[j-j]48, 49 most
[k-k]48, 49, 52, 57 defender
[l-l]48, 49 especial
[m-m]48, 49 occupations
[n-n]52, 57, 62, 65 other
[o]49, 52, 57, 62 the
[p-p]48, 49 portion of this work
[r-r]48, 49, 52, 57 a
[[*] ]Blackstone, Sir William. Commentaries on the Laws of England. 4 vols. Oxford: Clarendon Press, 1766, II, 116.
[a-a]48, 49, 52, 57 and English entails are not, in point of fact, much less injurious than those of other countries
[c-c]48, 49, 52, 57, 62 for
[a-a]48, 49 right
[b-b]48, 49, 52, 57 into
[c]48, 49 (or her)
[d-d]48, 49 be more capable than others of providing for themselves, or may have fewer wants, or possess other resources;
[e-e]48, 49 desirable, it is not precise or pedantic equality. The law, however, must proceed by fixed rules.
[g-g]48, 49 the family
[h-h]48, 49 possibly at a great pecuniary sacrifice, and with the destruction to the whole family of local ties and attachments] 52, 57 perhaps at a great pecuniary sacrifice
[i-i]48, 49 families
[j-j]48, 49 deaths
[b]48, 49 all or most
[c]48, 49, 52 endless
[d]48, 49 prolonged
[* ] Mr. Cecil Fane, the Commissioner of the Bankruptcy Court, in his evidence before the Committee on the Law of Partnership, says: “I remember a short time ago reading a written statement by two eminent solicitors, who said that they had known many partnership accounts go into Chancery, but that they never knew one come out. . . . Very few of the persons who would be disposed to engage in partnerships of this kind” (co-operative associations of working men) “have any idea of the truth, namely, that the decision of questions arising amongst partners is really impracticable.
[e]48, 49 only
[f-f]48, 49 , and the formalities which have been substituted for it are not sufficiently onerous to be very much of an impediment to such undertakings
[* ] Report, ut supra, p. 167.
[g]48 : and this liberty, in England, they cannot now be fairly said not to have, though they have had it but for a little more than three years.] 49 as 48 . . . to have.
[h]48, 49 which law can give
[i]48, 49 , though less, I believe, owing to the defects of the law, than to those of the courts of judicature
[a-a]48, 49, 52 may
[b-b]+57, 62, 65, 71
[c-c]48, 49, 52 disallows
[d-d]48, 49, 52 can still be only
[e-e]48, 49, 52 has
[f-f]48, 49, 52 stand
[g]48, 49, 52. This form of association, though unknown to the general law of this country, exists in many particular cases by special privilegium.
[h-h]48, 49, 52 entirely
[i-i]48, 49 may
[j-j]48, 49 Admitting that this is one of the disadvantages of such associations
[k-k]52, 57 has however been proved by the evidence of several experienced witnesses before a late committee of the House of Commons,
[* ]See the Report already referred to [Parliamentary Papers, 1851, XVIII], pp. 145-158.
[l-l]48, 49 the association
[m-m]48, 49 obtained, with equal capital, greater credit
[† ]The quotation is from a translation published by Mr. H. C. Carey, in [48 published in] an American periodical, Hunt’s Merchant’s Magazine, for May and June 1845 [Vol. XII, pp. 514-5] [48 , by Mr. H. C. Carey of Philadelphia, to whose writings I have before had occasion to advert].
[n]48, 49 at all
[a-a]48, 49 permitted
[c-c]48, 49 rational
[d-d]48, 49 because it would often be very difficult to find
[e-e]48 another person’s
[* ] “There has been a great deal of commiseration professed,” says Mr. Duncan, solicitor, “towards the poor inventor; he has been oppressed by the high cost of patents; but his chief oppression has been the partnership law, which prevents his getting any one to help him to develop his invention. He is a poor man, and therefore cannot give security to a creditor; no one will lend him money; the rate of interest offered, however high it may be, is not an attraction. But if by the alteration of the law he could allow capitalists to take an interest with him and share the profits, while the [Source, 52, 57 their] risk should be confined to the capital they embarked, there is very little doubt at all that he would frequently get assistance from capitalists; whereas at the present moment, with the law as it stands, he is completely destroyed, and his invention is useless to him; he struggles month after month; he applies again and again to the capitalist without avail. I know it practically in two or three cases of patented inventions; especially one where parties with capital were desirous of entering into an undertaking of great moment in Liverpool, but five or six different gentlemen were deterred from doing so, all feeling the strongest objection to what each one called the cursed partnership law.” Report, [Parliamentary Papers, 1851, XVIII,] p. 155.
[[*] ]Hunt’s Merchants’ Magazine, XII (May, 1845), 412.
[f]48, 49 the system of which M. Leclaire has set so useful an example,
[† ] It is considered possible to effect this through the Limited Liability Act, by erecting the capitalist and his workpeople into a Limited Company; as proposed by Messrs. Briggs (supra, vol. ii. pp. 774-5).
[g-g]48, 49 It is only by combining, that the small means of many can be on anything like an equality of advantage with the great fortunes of a few. The liberty of association is not
[h]52, 57 which have been so eminently successful in France,
[i-i]48 Socialism, Communism, every
[j-j]48, 49 aspiring among
[k-k]48, 49 and would discover, at no cost to society, the limits of the practical worth of their ideas of social regeneration, as applicable to the present stage of human advancement
[l-l]52, 57, 62 what
[* ] By an Act of the year 1852, [52 the present session (1852)] called the Industrial and Provident Societies [52, 57 Provident Partnerships] Act, for which the nation is indebted to the public-spirited exertions of Mr. Slaney, industrial associations of working people are admitted to the statutory privileges of Friendly Societies. This not only exempts them from the formalities applicable to joint-stock companies, but provides for the settlement of disputes among the partners without recourse to the Court of Chancery.  There are still some defects in the provisions of this Act, which hamper the proceedings of the Societies in several respects; as is pointed out in the Almanack of the Rochdale Equitable Pioneers for 1861.
[m-m]+52, 57, 62, 65, 71
[n-n]48, 49 as to reduce (in a merely economical point of view) the jealousy which the law entertains of the principle of limitation to the rank of a very minor inconvenience, such
[* ]In a note appended to his translation of M. Coquelin’s paper. [Hunt’s Merchants’ Magazine, XII (June, 1845), 517-9.]
[o-o]48, 49 [in italics]
[p-p]48, 49 [in italics]
[q-q]48, 49 [in italics]
[r-r]48, 49 [in italics]
[s-s]48, 49 [in italics]
[t-t]48, 49 [in italics]
[u-u]48, 49 [in italics]
[v-v]48, 49 [in italics]
[w-w]48, 49 [in italics]
[x]48, 49 To this state might England also be brought, but not without giving the same plenitude of liberty to voluntary association.
[y-y]48, 49 ;” and I concur in thinking that to this conclusion, science and legislation must ultimately come] 52, 57, 62 as 48 . . . must come
[[*] ]Hunt’s Merchants’ Magazine, XII (June, 1845), 520.
[a-a]48, 49, 52, 57 have been
[b]48, 49, 52, 57 have
[c-c]+62, 65, 71
[d]48, 49 (and is indeed little better than a timid shrinking from the infliction of anything like pain, next neighbour to the cowardice which shrinks from necessary endurance of it,)
[e-e]48, 49 sees
[f-f]48, 49 has been
[g-g]48, 49 and much of it
[h-h]48, 49 . Because insolvency was formerly treated as if it were necessarily a crime, everything is now done to make it, if possible, not even a misfortune.
[i-i]52, 57 a recent enactment, a partial but very salutary
[j]48, 49 present
[k-k]48, 49 that object, in the present state of the law, is not attained
[l-l]48, 49 . In
[m-m]48, 49 has not furnished them with any
[n]48 And it is seldom difficult for a dishonest debtor, by an understanding with one or more of his creditors, or by means of pretended creditors set up for the purpose, to abstract a part, perhaps the greatest part, of his assets, from the general fund, through the forms of the law itself. The facility and frequency of such frauds is a subject of much complaint, and their prevention demands a vigorous effort of the legislature, under the guidance of judicious persons practically conversant with the subject. [paragraph 49 as 48 . . . frauds are . . . as 48]]
[p-p]48, 49 lawful
[q-q]+52, 57, 62, 65, 71
[r-r]48, 49 The humanitarians do not deny
[s-s]48, 49 may reasonably
[t-t]48, 49 be
[u-u]+52, 57, 62, 65, 71
[v-v]Source, 48, 49 speculations
[* ]From a volume published in 1845, entitled, “Credit the Life of Commerce,” by Mr. J. H. Elliott. [London: Madden and Malcolm, pp. 48-50.]
[w-w]Source, 48, 49 neglected
[x-x]Source, 48, 49, 52, 57 , “The new Court has been open upwards of eighteen months, during which period
[y]48, 49 , which are considerable
[* ]Pp. 50-1.
[z-z]48, 49 when
[a-a]48, 49 the present
[b-b]48, 49 grievous
[c-c]+52, 57, 62, 65, 71
[d-d]48, 49, 52, 57, 62 : when
[e-e]48, 49 puts
[f-f]48, 49 is already
[* ]The following extracts from the French Code de Commerce, (the translation is that of Mr. [Cecil] Fane [Bankruptcy Reform. London: Sweet, 1838, pp. 44-7],) show the great extent to which the just distinctions are made, and the proper investigations provided for, by French law. The word banqueroute, which can only be translated by bankruptcy, is, however, confined in France to culpable insolvency, which is distinguished into simple bankruptcy and fraudulent bankruptcy. The following are cases of simple bankruptcy:—
[a-a]+49, 52, 57, 62, 65, 71
[b-b]48, 49 permitted
[c-c]48, 49 us
[d-d]48, 49 we
[e-e]48, 49 the country
[f]48, 49 which would be
[* ]Supra, vol. i. pp. 78 et seqq.
[g-g]48, 49 country-people
[h-h]48, 49 country-people
[i-i]48, 49 are
[j-j]48, 49 some
[k-k]48, 49 there seems
[l-l]48, 49 chimerical
[m-m]48, 49, 52 special
[n-n]48, 49, 52, 57, 62, 65 system of Protection
[o]48, 49, 52, 57, 62, 65 wholly
[p-p]48, 49, 52, 57, 62 no
[q-q]+62, 65, 71
[r-r]48, 49, 52, 57, 62, 65 will
[t]48, 49 strictly
[* ] To this Mr. Carey would reply (indeed he has already so replied in advance) that of all commodities manure is the least susceptible of being conveyed to a distance. This is true of sewage, and of stable manure, but not true of the ingredients to which those manures owe their efficiency. These, on the contrary, are chiefly substances containing great fertilizing power in small bulk; substances of which the human body requires but a small quantity, and hence peculiarly susceptible of being imported; the mineral alkalies and the phosphates. The question indeed mainly concerns the phosphates, for of the alkalies, soda is procurable everywhere; while potass, being one of the constituents of granite and the other feldspathic rocks, exists in many subsoils, by whose progressive decomposition it is renewed, a large quantity also being brought down in the deposits of rivers. As for the phosphates, they, in the very convenient form of pulverized bones, are a regular article of commerce, largely imported into England; as they are sure to be into any country where the conditions of industry make it worth while to pay the price.
[a-a]48, 49, 52 everywhere interferes
[b-b]48, 49, 52 to
[c]48, 49 It is for the good certainly of borrowers. For preferring, however, their advantage to that of lenders, it would be difficult to give any better reason than that in most countries the governing classes are borrowers.
[d-d]48, 49 besides
[e]48, 49, 52 at any rate
[[*] ]Smith, Wealth of Nations, Vol. II, p. 409.
[g-g]48, 49, 52, 57, 62 Up to the relaxation of the usury laws a few years ago
[h-h]+52, 57, 62, 65, 71
[i-i]48, 49 We reformed the laws
[j-j]48, 49, 52, 57 comes
[k-k]+52, 57, 62, 65, 71
[l-l]48, 49, 52 are
[m-m]48, 49, 52 may
[n-n]48, 49, 52 think
[o]48, 49 so long
[p-p]48, 49, 52 is
[q-q]48, 49, 52 can
[r-r]48, 49, 52 is
[s-s]48, 49 which, on the requisition of his relations, the Roman Law and some of the Continental systems founded on it give power in certain cases to do
[t-t]48, 49, 52, 57, 62, 65 a term . . . as 71 . . . project
[u]48, 49 sure to be the
[a]48, 49 worst
[a]48, 49 but
[b-b]48, 49 sufficiently
[c]48, 49 enterprising
[d-d]48, 49 permitted
[f-f]62, 65 those
[g-g]+62, 65, 71
[h-h]62 : and
[a-a]48, 49, 52 much more than] 57, 62, 65 so much as
[b-b]48, 49 twenty years] 52 twenty-five years
[c-c]48, 49, 52, 57, 62 is in full vigour at this day in some other countries
[d-d]48, 49, 52, 57, 62, 65 But if they aimed at obtaining actually higher wages than the rate fixed by demand and supply—the rate which distributes the whole circulating capital of the country among the entire working population—
[e-e]48, 49 workmen
[f-f]48, 49 workmen
[g-g]+52, 57, 62, 65, 71
[h-h]48, 49 a benefit
[i-i]48, 49, 52, 57 however
[j-j]48 . But
[k-k]48, 49 cannot
[l-l]48, 49, 52, 57 universal
[m]48, 49 whatever
[n-n]48, 49, 52, 57 universal
[o-o]49 great [printer’s error?]
[p-p]93348, 49 Combinations to keep up wages are therefore not only permissible, but useful, whenever really calculated to have that effect. [no paragraph]
[q]52, 57 late
[r-r]933+62, 65, 71
[s-s]62, 65 I grant that a strike is wrong whenever it is foolish, and it is foolish
[t-t]62, 65 rendered possible
[u-u]62, 65 supply. But
[[*] ]Smith, Wealth of Nations, Vol. I, p. 102.
[v-v]62 Mr. Henry
[[†] ]“Strikes, Their Tendencies and Remedies,” Westminster Review, n.s. XVIII (July, 1860), 1-23, especially 5 ff.
[* ]Supra, book v. chap. vii. [? IV, vii, pp. 758-96.]
[w]52, 57 [no paragraph]
[x-x]48, 49 that the combination
[y-y]48, 49 , and a limitation of the number of persons in employment may be a necessary condition of these. Combinations, therefore, not to work for less than certain wages, or for more than a certain number of hours, or even not to work for a master who employs more than a certain number of apprentices, are, when voluntary on the part of all who engage in them, not only unexceptionable, but would be desirable, were it not that they almost always fail of their effect. But
[z-z]+52, 57, 62, 65, 71
[a-a]+49, 52, 57, 62, 65, 71
[b-b]48 property and industry] 49 industry and its remuneration
[c-c]48, 49, 52, 57 it is the avowed object
[d-d]48 Every society which exacts from its members obedience to rules of this description, and endeavours to enforce compliance with them on the part of employers by refusal to work, is a public nuisance. Whether] 49 Any society . . . as 48 . . . work, incurs the inconveniences of Communism, without getting rid of any of those of individual property. It does not follow, however, that
[e-e]48 , depends upon the difficult question of the legitimate bounds of constitutional liberty. What are the proper limits to the right of association? To associate for the purpose of violating the law, could not of course be tolerated under any government. But among the numerous acts which, although mischievous in themselves, the law ought not to prohibit from being done by individuals, are there not some which are rendered so much more mischievous when people combine to do them, that the legislature ought to prohibit the combination, though not the act itself? When these questions have been philosophically answered, which belongs to a different branch of social philosophy from the present, it may be determined whether the kind of associations here treated of can be a proper subject of any other than merely moral repression.
[* ] Whoever desires to understand the question of Trade Combinations as seen from the point of view of the working people, should make himself acquainted with a pamphlet published in 1860, under the title “Trades Unions and Strikes, their Philosophy and Intention; by T. J. Dunning, Secretary to the London Consolidated Society of Bookbinders.” [London: Dunning, 1860.] There are many opinions in this able tract in which I only partially, and some in which I do not at all, coincide. But there are also many sound arguments, and an instructive exposure of the common fallacies of opponents. Readers of other classes will see with surprise, not only how great a portion of truth the Unions have on their side, but how much less flagrant and condemnable even their errors appear, when seen under the aspect in which it is only natural that the working classes should themselves regard them.
[a-a]48, 49, 52, 57 from the Reformation to the present time
[b-b]48, 49 two or three] 52 five or six] 62, 65 ten or fifteen
[c-c]48, 49 infidel opinions
[d-d]48, 49 so
[a-a]48, 49, 52 been carried on
[b-b]62, 65 in
[* ]Supra, book v. ch. 1. [Pp. 799-804.]
[a-a]48, 49, 52 round
[b-b]+52, 57, 62, 65, 71
[* ]The only cases in which government agency involves nothing of a compulsory nature, are the rare cases in which, without any artificial monopoly, it pays its own expenses. A bridge built with public money, on which tolls are collected sufficient to pay not only all current expenses, but the interest of the original outlay, is one case in point. The government railways in Belgium and Germany are another example. The Post Office, if its monopoly were abolished, and it still paid its [48, 49, 52, 57 own] expenses, would be another.
[a-a]48, 49 our
[b-b]49 is more
[c-c]48, 49 some other and
[d-d]+62, 65, 71
[a-a]48, 49, 52, 57 or
[b-b]48, 49, 52 on
[c-c]48, 49, 52 may
[a-a]48, 49, 52, 57 and
[b-b]48, 49 difficulties
[c-c]48, 49 difficulties
[d-d]48, 49 by the fact, that
[e-e]48, 49, 52 much
[f-f]48, 49, 52, 57 the
[a-a]48, 49, 52, 57, 62, 65 by
[* ]De la Liberté du Travail, vol. ii. pp. 353-4.
[† ]I quote at second hand, from Mr. Carey’s Essay on the Rate of Wages [Philadelphia: Carey, Lea and Blanchard, 1835], pp. 195-6 [195n-196n].
[b-b]48, 49 agent has
[c-c]48, 49 his
[d-d]48, 49 or
[a-a]48, 49 select
[* ]In opposition to these opinions, a writer, with whom on many points I agree, but whose hostility to government intervention seems to me too indiscriminate and unqualified, M. Dunoyer, observes, that instruction, however good in itself, can only be useful to the public in so far as they are willing to receive it, and that the best proof that the instruction is suitable to their wants is its success as a pecuniary enterprise. This argument seems no more conclusive respecting instruction for the mind, than it would be respecting medicine for the body. No medicine will do the patient any good if he cannot be induced to take it; but we are not bound to admit as a corollary from this, that the patient will select the right medicine without assistance. Is it not probable [48, 49, 52, 57, 62 possible] that a recommendation, from any quarter which he respects, may induce him to accept a better medicine than he would spontaneously have chosen? This is, in respect to education, the very point in debate. Without doubt, instruction which is so far in advance of the people that they cannot be induced to avail themselves of it, is to them of no more worth than if it did not exist. But between what they spontaneously choose, and what they will refuse to accept when offered, there is a breadth of interval proportioned to their deference for the recommender. Besides, a thing of which the public are bad judges, may require to be shown to them and pressed on their attention for a long time, and to prove its advantages by long experience, before they learn to appreciate it, yet they may learn at last; which they might never have done, if the thing had not been thus obtruded upon them in act, but only recommended in theory. Now, a pecuniary speculation cannot wait years, or perhaps generations for success; it must succeed rapidly, or not at all. Another consideration which M. Dunoyer seems to have overlooked, is, that institutions and modes of tuition which never could be made sufficiently popular to repay, with a profit, the expenses incurred on them, may be invaluable to the many by giving the highest quality of education to the few, and keeping up the perpetual succession of superior minds, by whom knowledge is advanced, and the community urged forward in civilization.
[b-b]48 To this argument there could be no reply,
[c-c]48 , no one would seek to undermine so virtuous a habit by volunteering a needless assistance. It is because
[f-f]48, 49, 52 providing elementary schools,
[g]48 , but which it might be proper to demand, merely in recognition of a principle: the remainder of the cost to be defrayed, as in Scotland, by a local rate, that the inhabitants of the locality might have a stronger interest in watching over the management, and checking negligence and abuse] 49, 52 : the remainder . . . as 48
[h-h]48, 49, 52, 57 Nor is it to be endured
[i]48, 49 whole
[j-j]48, 49 a despot
[k-k]48, 49, 52 may
[* ] The practice of the English law with respect to insane persons, especially on the all-important point of the ascertainment of insanity, most urgently demands reform. At present no persons, whose property is worth coveting, and whose nearest relations are unscrupulous, or on bad terms with them, are secure against a commission of lunacy. At the instance of the persons who would profit by their being declared insane, a jury may be impanelled and an investigation held at the expense of the property, in which all their personal peculiarities, with all the additions made by the lying gossip of low servants, are poured into the credulous ears of twelve petty shopkeepers, ignorant of all ways of life except those of their own class, and regarding every trait of individuality in character or taste as eccentricity, and all eccentricity as either insanity or wickedness. If this sapient tribunal gives the desired verdict, the property is handed over to perhaps the [52 very] last persons whom the rightful owner would have desired or suffered to possess it. Some recent instances of this kind of investigation have been a scandal to the administration of justice. Whatever other changes in this branch of law may be made, two at least are imperative: first, that, as in other legal proceedings, the expenses should not be borne by the person on trial, but by the promoters of the inquiry, subject to recovery of costs in case of success: and secondly, that the property of a person declared insane, should in no case be made over to heirs while the proprietor is alive, but should be managed by a public officer until his death or recovery.
[a-a]48, 49, 52, 57 mistakes
[b]48, 49 ; a fortnight’s imprisonment, or a fine of forty shillings
[c-c]48, 49, 52, 57 recent
[d-d]48, 49, 52, 57, 62, 65 Act
[e-e]48, 49, 52, 57, 62, 65 So long as
[a-a]48, 49, 52 judge
[b-b]+52, 57, 62, 65, 71
[a-a]+62, 65, 71
[b]48, 49 still greater
[* ]A parallel case may be found in the distaste for politics, and absence of public spirit, by which women, as a class, are characterized in the present state of society, and which is often felt and complained of by political reformers, without, in general, making them willing to recognise, or desirous to remove, its cause. It obviously arises from their being taught, both by institutions and by the whole of their education, to regard themselves as entirely apart from politics. Wherever they have been politicians, they have shown as great interest in the subject, and as great aptitude for it, according to the spirit of their time, as the men with whom they were cotemporaries: in that period of history (for example) in which Isabella of Castile and Elizabeth of England were, not rare exceptions, but merely brilliant examples of a spirit and capacity very largely diffused among women of high station and cultivation in Europe.
[a-a]48, 49, 52, 57 from twelve to ten
[b-b]48, 49, 52, 57 ten
[c-c]48, 49, 52, 57 twelve
[d]48, 49 , and there cannot be any need for enforcing it by a legal prohibition] 52, 57 as 48 . . . by legal . . . as 48
[e-e]48, 49, 52, 57 ten
[f-f]48, 49, 52, 57 twelve
[g-g]48, 49, 52, 57 one-sixth
[h-h]48, 49, 52, 57 ten
[i-i]48, 49, 52, 57 twelve
[j-j]48, 49, 52, 57, 62, 65 advantage
[k-k]48, 49, 52, 57 twelve
[l-l]48, 49, 52, 57 ten
[m-m]48, 49, 52, 57 two hours’
[n-n]48, 49, 52, 57 ten
[o-o]48, 49, 52, 57 twelve
[p-p]48, 49, 52, 57 ten
[q-q]48, 49, 52, 57 do not mean to express an
[r-r]+62, 65, 71
[t]48, 49 , and one of great practical moment,
[u-u]48, 49, 52, 57 if such it may
[w-w]+49, 52, 57, 62, 65, 71
[x-x]48 cannot be
[y-y]48, 49, 52, 57, 62 reason,
[z-z]48 an even
[a-a]+57, 62, 65, 71
[a-a]48, 49, 52, 57 over which the government claims control
[b-b]48, 49, 52, 57 relaxing
[c]48, 49 systematic and
[d]48, 49 ; and to get rid of this is important, even as a matter of police [policy? printer’s error?]
[e-e]+52, 57, 62, 65, 71
[g]48, 49, 52, 57 with
[a]48, 49 very
[b]48, 49 possibly
[c-c]+62, 65, 71
[d-d]48, 49 cannot have
[e-e]48, 49, 52, 57 labourers
[f-f]52 unemployed [printer’s error?]
[g-g]+52, 57, 62, 65, 71
[h]48, 49, 52, 57, 62, 65 has since been
[i]48, 49 the price of land being generally fixed too low, and
[j-j]+52, 57, 62, 65, 71
[k-k]48, 49, 52, 57 Port Philip
[l]48 The oldest of the Wakefield colonies, South Australia, is scarcely twelve years old; Port Philip is still more recent; and they are probably at this moment the two places, in the known world, where labour on the one hand, and capital on the other, are the most highly remunerated.] 49 as 48 . . . is little more than twelve . . . as 48
[* ] The objections which have been made, with so much virulence, in some of these colonies, to the Wakefield system, apply, in so far as they have any validity, not to the principle, but to some provisions which are no part of the system, and have been most unnecessarily and improperly engrafted on it; such as the offering only a limited quantity of land for sale, and that by auction, and in lots of not less than 640 acres, instead of selling all land which is asked for, and allowing to the buyer unlimited freedom of choice, both as to quantity and situation, at a fixed price.
[n-n]+52, 57, 62, 65, 71
[o]52 at the present moment,
[r-r]52 While the stream of this emigration continues flowing, as broad and deep as at present, the principal office required from government would be to direct a portion of it to quarters (such as Australia), where, both for local and national interests, it is most of all required, but which it does not sufficiently reach in its spontaneous course.
[t-t]57 there are indications
[u-u]57 is again becoming
[a-a]96948, 49, 52, 57, 62 [in footnote]
[c-c]62 consequently which [printer’s error?]
[d-d]48, 49 our
[e]48, 49, 52, 57, 62 the
[f-f]48, 49 Aristotle and Plato
[h-h]48, 49, 52 are
[a-a]48, 49, 52, 57 conjoint