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chapter seven: That the Interest of the State in Matters of Taxation Is Consistent with Individual Rights - Benjamin Constant, Principles of Politics Applicable to All Governments [1815]

Edition used:

Principles of Politics Applicable to a all Governments, trans. Dennis O’Keeffe, ed. Etienne Hofmann, Introduction by Nicholas Capaldi (Indianapolis: Liberty Fund, 2003).

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chapter seven

That the Interest of the State in Matters of Taxation Is Consistent with Individual Rights

Let us now show that the interest of the State in matters of taxation is consistent with individual rights. For unfortunately it is not enough to show what is just. One has also to convince government that what is just is no less functional.

We have shown the iniquity of the land tax when it exceeds the level necessary to make landowners contribute their due part in the payment of taxes. The same tax is hurtful to government both by being expensive to collect and by its effects on agriculture. It keeps the majority of the working class in poverty. It keeps a crowd of workers employed only to collect it in barren activity. It soaks up assets which, not being reinvested, are removed from individual wealth and lost to public wealth. Our costs of enforcement, our innumerable deputy bailiffs, the armed force spread over the countryside to effect the gathering of overdue taxes should have convinced us of these truths. It has been shown that the raising of 250 million via this mode of taxation entailed 50 million just in enforcement costs. As a result the nation most famous for its adroit financial management, so far from making the land tax the basis of its revenue, does not take it any further than to a twelfth of total taxation.11

We have condemned taxes on patents as assaults on the sacred rights of work, assaults aimed at the occupations the poor man can engage in. By reason of its organization, this tax is one of the least easy to collect and involves the most unproductive efforts, that is to say the most losses to the exchequer.

We have said12 that taxes became contrary to individual rights when they authorized persecutory investigations. We [263] cited the Alcavala in Spain, a tax which subjected every sale of any article, whether transferable assets or real estate, to a charge. Don Ustariz considers it the cause of the decay of Spanish finances.13

We have rejected taxes which encourage fraud. Is there any need to show how deadly this struggle between government and citizens is? And can one not see at a glance that it is ruinous even in financial terms? We added that when excessive taxes wiped out a branch of commerce, this was an attack on industry. Spain was punished for just such an attack. Several of her mines in Peru remain undeveloped because the tax due to the King absorbs the whole output of their proprietors. This hurts both the treasury and individual people.14

We condemned lotteries, though their revenue is easily collected, because they have the effect of corrupting men. Governments themselves, however, pay the penalty for that corruption. First of all, the harm lotteries do to production diminishes reinvestment and therefore national wealth. Secondly, the crime they cause among the working class is, when we put all moral questions to one side and think of it only in fiscal terms, a public expense. Thirdly, minor officials let themselves be seduced by the spell of lotteries, and the costs fall on governments. There were under the Directory in a single year twelve million francs’ worth of bankruptcies among tax collectors, and it was shown that about two-thirds of these collectors had been ruined by the lottery. Finally, the gathering of a tax of this sort, though easy, is nonetheless expensive. To make lotteries pay, you must multiply the temptations, and to multiply the temptations you must also multiply the offices. Hence the high collection costs. In M. Necker’s day, income from the lotteries stood at 11,500,000. Collection cost 2,400,000 or close to 21 percent, such that the most immoral tax was at the same time the most costly to the state.15

[264] We showed lastly that taxes should never bear on anything save incomes. When they cut into capital, first of all they ruin individuals and then the government. The reason is simple.

All men with some idea of political economy know that expenditures fall into two types: the productive and unproductive. The first are those which create wealth, and the second those which create nothing. A forest which is cut down to build ships or a town is used up as much as one consumed by a fire. In the first case, however, the fleet or city which has been built more than replaces the forest which has disappeared; in the second only ashes remain.

Unproductive expenditures can be necessary. Each person commits part of his income to food. This expenditure is unproductive but indispensable. A state of war with neighboring countries consumes a part of public resources for the subsistence of the armed forces and so that they may be supplied with the war munitions needed for attacking and defending. This is not wasted expenditure though it is an unproductive one. Even so, if unproductive expenditures are often necessary to secure the lives or security of individuals and nations, it is only productive expenditures which can augment the wealth of either. That which is consumed unproductively is always an excusable and legitimate loss when the need requires it, but crazy and inexcusable when it does not.

The money called into play between all productions as a medium of exchange has served to spread a certain obscurity on this question. Since money is used without destroying itself, it has been believed that however it was used, it came to the same thing. It ought to have been thought that money could be used for reinvestment or it could be used without producing anything. If a government spends ten million making an army march in different directions or on giving magnificent parties, spectacles, illuminations, dances, firework displays, the ten million thus consumed is not destroyed. The nation is not made poorer by ten million. Yet this ten million has produced nothing. The society retains only the ten million it originally possessed. If, on the contrary, [265] this ten million has been used to build factories or buildings suitable for any kind of manufacturing or industry, to improve land, in brief, to reinvest in some commodity, the nation would have had on the one hand the ten million consumed in this way and on the other the assets this ten million would have produced.

I would like to expand somewhat on this important subject, since there is a disastrous viewpoint which holds that all the uses of capital are the same. This opinion is popularized by all those who benefit from government squandering and by those who repeat on trust maxims they do not understand. Doubtless money, the sign of wealth, does no more in all cases than pass from one hand to another. But when it is used in reinvestment expenditures, then its value is twofold; when the expenditure is nonproductive, there is only one value. Since in order to be dissipated in unproductive expenditures, money is snatched away from the class which would have used it productively, the nation, if not made poorer in money terms, is deprived of all the production which has not taken place. The nation keeps the sign but loses the reality. The Spanish example is sufficient instruction to us that the sign of money is anything but real wealth.

It is therefore certain that the only means of prosperity for a nation is the use of capital in productive expenditures.

Now, even the wisest governments cannot use funds taken from individuals except in unproductive expenditures. The costs of the salaries of public functionaries of all sorts, the maintenance of order, of the law courts, of war finance, of all branches of the civil service, are expenditures of this type. When the State uses only a part of income for these expenditures, the assets remaining in the hands of individuals secure the necessary reinvestment. If the State deflects assets from their intended purpose, however, reinvestment shrinks, and since it becomes necessary then every year, as we have shown above, to confiscate proportionately more assets, reinvestment will finish by ceasing completely and State and individuals alike will be ruined.

“Just as the wastrel who consumes beyond his income,” says Ganilh in his history of public revenue,16 “diminishes his property by the whole amount by which he has exceeded his income and soon sees income and property disappear, [266] the State which taxes property17 and consumes its product like income, is marching to certain and fast-approaching decadence.”

So then, in matters of taxation as in all things, the laws of equity are the best ones to follow, even were one to think of them only in terms of their utility. The government which violates justice in the hope of some wretched gain pays dearly for this violation; and the rights of individuals should be respected by governments even when these have only their own interests in mind.

[11. ]See Constant’s Note I at the end of Book XI.

[12. ]In Ch. 5 of this same Book XI, How Taxation Becomes Contrary to Individual Rights.

[13. ]See Constant’s Note J at the end of Book XI.

[14. ]See Constant’s Note K at the end of Book XI.

[15. ]The example and figures come from Jacques Necker, De l’administration des finances, op. cit., t. I, pp. 84–88.

[16. ]See Constant’s Note L at the end of Book XI.

[17. ]See Constant’s Note M at the end of Book XI.

[I. (Refers to page 216.)]The public revenue in England was in 1799 close to £27,000,000 and the land tax only £2,000,000.32

[J. (Refers to page 216.)]Théorie pratique du commerce d’Espagne.33

[K. (Refers to page 216.)]See de Ulloa.34

[L. (Refers to page 218.)]Tome II, p. 289.

[M. (Refers to page 218.)]Capital.

[I. (Refers to page 216.)]The public revenue in England was in 1799 close to £27,000,000 and the land tax only £2,000,000.32

[J. (Refers to page 216.)]Théorie pratique du commerce d’Espagne.33

[K. (Refers to page 216.)]See de Ulloa.34

[32]These figures and this example come from Ganilh, op. cit., t. II, pp. 350–351, himself drawing on George Rose, A brief examination . . . , op. cit.

[33]Don Geronimo de Ustariz, Théorie et practique de commerce et de la marine, Paris, Vve Estienne et Fils, 1753, Seconde Partie, Ch. XCVI and XCVII; especially p. 107: “I do not doubt for a moment that such is the cause of the destruction of our manufactures.” This example of the Alcavala and the reference to Ustariz are taken from Charles Ganilh, op. cit., t. II, pp. 306–307. Adam Smith speaks of it too, op. cit., t. IV, pp. 444–445.

[34]Antonio de Ulloa, Voyage historique de l’Amérique méridionale fait par ordre du roi . . . , Paris, C.-A. Jombert, 1752, 2 vol. This reference too comes from Adam Smith, op. cit., t. I, p. 34.