The Online Library of Liberty

A project of Liberty Fund, Inc.

• Preface
• Translator's Note
• Where and Why Public Ownership Has Failed
• Book I: Public and Private Trading Operations
• Chapter I: Two Precepts
• Chapter II: The Three Mainsprings of Human Action
• Chapter III: Determining Motives of Private As Against Public Enterprises
• Chapter IV: Government and Municipal Trading Operations
• Book II: Financial Results of Government and Municipal Ownership
• Chapter I: Bookkeeping In State and Municipal Trading Enterprises
• Chapter II: The Belgian State Railroads
• Chapter III: Prussian Railroads
• Chapter IV: State Railways of Austria and Hungary
• Chapter V: Italian Railways
• Chapter VII: Railways of New Zealand
• Chapter VIII: Government Railroads In France
• Chapter IX: Public Vs. Private Operation
• Chapter X: The Holy Cities of Municipal Operation
• Chapter XI: Operation of Gas and Electricity In the United Kingdom
• Chapter XII: Tramways In Great Britain
• Chapter XIII: Housing of the Working Classes and Public Ownership In Great Britain
• Chapter XIV: Housing of the Working Classes On the Continent
• Chapter XV: Government Control of Food Supplies
• Chapter XVI: Victims of Government Ownership
• Chapter XVII: Charges, Debts and Credit
• Chapter XVIII: Fictitious Profits
• Chapter XIX: Fiscal Monopolies
• Chapter XX: The Alcohol Monopoly In Switzerland and Russia
• Chapter XXI: Financial Disorder
• Chapter XXII: The Purchase Price
• Chapter XXIII: Delusions of Profit and the Life Insurance Monopoly In Italy
• Chapter XXIV: The Fiscal Mines of the Saar District
• Chapter XXV: Public Versus Private Enterprise
• Book III: Administrative Results
• Chapter I: Administrative Results
• Chapter II: The Safety of Travelers Upon State and Private Railway Lines
• Chapter III: Disorders, Delays and Errors
• Chapter IV: Official Conservatism
• Chapter V: Labor
• Chapter VI: The Consumer
• Chapter VII: Programs of Organization and Regulation
• Book IV: Political and Social Consequences of Public Operation
• Chapter I: Socialist Programs and the Facts
• Chapter II: Bluff
• Chapter III: Results of Experience
• Chapter IV: The State a Dishonest Man
• Chapter V: Corruption
• Chapter VI: Nationalization of Public Utilities and the Foundation of Great Fortunes
• Chapter VII: Disintegrating Character of Public Operation
• Appendix %u201ca%u201d: Alcoholism In Russia
• Appendix %u201cb%u201d: the Financial Year In Australia
• Appendix %u201cc%u201d: the Shortcomings of the Telephone In England

CHAPTER XIX

FISCAL MONOPOLIES

• 1. Tobacco Monopoly in France.—Treasury Profits.—Losses to Agriculture, Industry and Commerce.—Use of National vs. Maryland Tobacco.—Opposition of the Consumer.—The Advantage.—Delusions Regarding Regulation.
• 2. The Match Monopoly in France.—No Amortization.—Bookkeeping Artifices.
• 3. Fiscal Profits.

1. It is customary to speak of the results of the tobacco monopoly in France, in force since 1811, as marvelous.

The income appears truly enormous. In 1815 it was 32,123,000 francs; in 1830, 46,782,000 francs; in 1850, 88,915,000 francs; in 1869, 197,210,000 francs; in 1890, 305,918,000 francs; in 1900, 338,872,000 francs; in 1910, 407,330,000 francs.

Without doubt this is a dazzling result from the fiscal point of view, and it also proves that the number of Frenchmen who use tobacco has increased more rapidly than the population.

But there are other ways for a government to make money out of tobacco than by monopolizing the sale of it. In 1908–1909 the United Kingdom realized £13,328,000 upon tobacco, that is to say, 333,450,000 francs, or only 74,000,000 francs ($14,060,000) less than our monopoly has yielded us.

We see what this monopoly has contributed to the Treasury; but we do not see the losses occasioned by it to French agriculture and industry. It is a privilege to be allowed to cultivate tobacco. I have heard a deputy say: “I will guarantee that not a single one of my political adversaries will cultivate one acre of tobacco.” Possibly he was boasting; but that a deputy could use such language is sufficient to prove just how far official authority is capable of being abused.

In any case there are only 27 districts permitted to cultivate tobacco, and these districts are situated in all parts of France, from the North to Landes, from Ile-et-Vilaine to the Var. Therefore, climatic reasons have not determined these concessions, which, as a matter of fact, are wholly dependent upon politics. The number of hectares authorized was 17,955 (44,880 acres) in 1909, and 18,005 hectares (45,000 acres) in 1910. In the first year mentioned 15,037 hectares (37,593 acres) out of a possible 17,955 hectares (44,880 acres), and in the second year, 14,683 hectares (36,708 acres) out of a possible 18,005 hectares (45,000 acres) were cultivated. The number of licenses was, respectively, 48,395 and 47,283.

The quantity of tobacco bought was 23,134,000 kg. (50,894,800 lbs.) in 1909, averaging 23,122,000 francs, and, in 1910, 21,034,000 kg. (46,274,800 lbs.), averaging 22,085,000 francs.

But let us look at the monopoly from a somewhat different standpoint. To-day we may buy scaferlati. Scaferlati is a raw product. Consequently you may imagine that you have the right to use it to manufacture cigarettes. In fact the Court of Cassation1 has made a ruling to that effect. Nothing of the kind. The department of Indirect Taxes (Administration des Contributions Indirectes) intervenes, and says to you: “You, a simple individual, cannot manufacture cigarettes, because I have reserved for myself a monopoly of this article.”

The rival claims of the various parties interested in the sale of tobacco became the subject of a lively discussion between the tobacco monopoly and the Court of Cassation. The Finance Law of 1895 finally put an end to the altercation by justifying the exorbitant pretensions of the monopoly. It decided that, although you can make cigarettes for your own personal use with the tobacco that you buy from the government, you have not the right to sell these cigarettes to your neighbor.

On September 17 and 18, 1903, there was another altogether edifying discussion—this time in the Senate—upon the manner in which the state treats the consumer. Certain senators were anxious to prevent the French smoker from smoking anything but the national tobacco. The Minister of Finance, M. Rouvier, opposed this restriction, but at the same time he proceeded to demonstrate how cavalierly the state may treat the consumer who has no other source of appeal:

In 1900, he declared, ordinary scafeerlati had been composed of 52 per cent. native tobacco and 48 per cent. foreign tobacco. In 1901 the proportion was changed to 54 per cent. native tobacco and 46 per cent. foreign tobacco. The consumption decreased 40,000 kg. (88,000 lbs.).

What would a private company have done under similar circumstances? It would have restored the former proportion, as a matter of course.

What did the government do? It increased the proportion of native tobacco.

In 1902 scaferlati was composed of 63 per cent. native tobacco and 37 per cent. foreign tobacco.

“The number of complaints increased,” added the minister placidly.

But what did the minister do about it? Was any attempt made to satisfy the consumer? Did the department restore the previous proportions? Not at all. The consumer was induced to see the error of his complaints in another way. Smokers had gradually abandoned the degenerate scaferlati for Maryland tobacco. Therefore, the government conceived the happy idea of increasing the price of Maryland tobacco. That would teach the smoker to be content with the government tobacco. Strange that MM. Gomot and Ournac should discover that this proportion of native tobacco was still unsatisfactory!

The example quoted above only serves to prove once more the truth of the following general law:

Under conditions of free competition the producer has more need of the consumer than the consumer of the producer, and it is necessary that the latter give the former the maximum of service at a minimum cost. Under monopolistic conditions the consumer is obliged to submit to the exigencies of the producer.

If the consumer wishes to retaliate he has no other recourse than that species of strike called abstention, which for him spells privation. As the case of the Maryland tobacco proves, the smoker cannot even resort to substituting one product for another. If he makes the attempt he is penalized.

Beginning with May 14, 1910, M. Cochery raised the rates on high-grade tobacco and certain tobaccos especially popular at the time. As a result of this measure an increase in the annual receipts of 18,000,000 francs was anticipated, and for 1910, 13,500,000 francs. The increase was but 10,044,000 francs, or only 998,000 francs more than the average increase for the previous four years. The detailed report of the sales shows that the public had abandoned the use of the high-grade tobaccos, and was contenting itself with scaferlati, the price of which remained the same. Probably it was not without discreet murmurs that the public resigned itself to this change of habit; but at least the passive and silent strife had some effect. The decree of June 26, 1911, reëstablished the former rates on brands the abandonment of which would make serious inroads upon the profits of the monopoly—that is to say, the more expensive scaferlati and the more popular cigarettes made from it.

But now let us suppose that this monopoly on to bacco in France did not exist. We French are extremely skilful in raising products of a refined savor, and we know how to prepare them in the most attractive manner. Let us imagine, then, that the cultivation and sale of tobacco were free. There would be tens of thousands of hectares under cultivation in those districts where the soil is best adapted for it. We would see manufacturers experimenting with skilful blends of native and foreign tobaccos suitable for exportation. We would see in the great cities large and imposing shops for the sale of tobacco like those seen abroad.

The department boasts of the excellence of its products. The foreigner does not share this opinion, because exportation is almost nil—3,547,000 francs ($673,930) in 1910. Yet attempts are made to export the home product, because included in the above figure is the sum of 83,718 francs ($15,906) for commissions paid to special export agents.

If the monopoly contributes 405,000,000 francs ($76,950,000) to the government on the one hand, it is certainly causing a loss of many hundreds of millions annually to French agriculture, industry and commerce on the other hand.

Moreover, but little regard is paid to the net cost of manufacture and sale. As a monopoly the state has, of course, a wide margin.

The books of the monopoly carry a kind of industrial account, entitled Capital de la Régie. On December 31, 1910, the amount was figured at 153,841,482 francs 07 ($29,229,881). Nothing more definite was given. The sum was distributed thus:

This table is supplemented by the following:

But what can the Treasury do with 42,000,000 francs in buildings and 6,000,000 francs in machinery, etc.? Surely there is no indication here of an industrial budget.

The tobacco monopoly bought nearly 32,000,000 francs ($6,080,000) of tobacco abroad in 1910. Tobacco experts visit the places of production, meet at Bremen, and buy tobacco. They are prepared for the business by the Polytechnic Institute. It is the easier for me to say what I am about to say since the probity of these agents has never been brought into question. But what control can be exercised by any legislative body over the millions of francs' worth of tobacco which thus passes from one hand to another? What possible chance is there of fixing individual responsibility?

In fact it cannot be too strongly asserted that legislators have yet to discover how to interfere effectively in trading operations carried on by the state.

2. The accounts devoted to the materials and money sunk in the operation of the chemical match monopoly for 1910 give us at least a certain amount of information. For example, the amount of capital controlled by the department on December 31, 1910, is figured at 10,633,635 francs 92, and is distributed as follows:

Many other details are found in the pages which follow, but there is no trace anywhere of what the English call “depreciation,” that is to say, amortization, on either real estate or equipment.

The monopoly buys matches abroad for 3,206,326 francs 04, upon which it pays 671,608 francs 07 customs duties, together with 3,008 francs 64 in the way of incidental expenses, forming a total of 3,880,942 francs 75.

The Minister of Finance collects theoretically 671,608 francs 07 from the customhouse upon this monopoly, and at least an equivalent sum as profit on the sale of the domestic product. Therefore, his accounts are just that much short at the end of the year. Here we have a bookkeeping artifice so much the more astonishing in that foreign matches are prohibited and cannot be brought into the country except by the government.

3. In the case of both tobacco and matches the term profit is applied to the difference existing between receipts and expenditures. But, from the standpoint of the consumer, this profit is neither more nor less than a reward of extortion, since consumers are unable to procure at the lowest price the goods which the monopoly forces upon them. The word profit is, therefore, altogether a misnomer.

In 1891 a committee of the Chamber of Deputies suggested to the various ministers that government employees be allowed to share in the profits of state operation.

At that time I had under my direction, as an industrial undertaking, the old government railway system. I answered that there were no profits and that consequently they could not be divided. But would it even have been possible to give to the employees and laborers connected with the prosperous tobacco and match industries a share in the “profits resulting from the sale of their products'? There are no real profits; there are fiscal advantages wrung from consumers.

Many of those who demand “industrial accounts” do it with the hidden hope that the departments of tobacco and matches are going to become the property of the employees concerned in their operation, who will thereupon enter into contracts with the government and thereby ensure for themselves “a share of the profits.” But such profits are, as has been already said, only the result of extortion, and, therefore, would inevitably disappear if unsupported by the laws at present in force.

A fiscal profit should never be mistaken for an industrial profit.

[1]The highest judicial court of France.