Elements of Political Economy
By James Mill
There are few things of which I have occasion to advertize the reader, before he enters upon the perusal of the following work.My object has been to compose a school-book of Political Economy, to detach the essential principles of the science from all extraneous topics, to state the propositions clearly and in their logical order, and to subjoin its demonstration to each. I am, myself, persuaded, that nothing more is necessary for understanding every part of the book, than to read it with attention; such attention as persons of either sex, of ordinary understanding, are capable of bestowing. [From the Preface]
First Pub. Date
London: Henry G. Bohn
The text of this edition is in the public domain.
Section IV. In What Manner Government Consumes
All consumption is either by individuals, or by the government. Having treated of the consumption of individuals, it only remains that we treat of that which has government for its cause.
Although the consumption by government, as far as really necessary, is of the highest importance, it is not, unless very indirectly, subservient to production. That which is consumed by government, instead of being consumed as capital, and replaced by a produce, is consumed, and produces nothing. This consumption is, indeed, the cause of that protection, under which all production has taken place; but if other things were not consumed in a way different from that in which things are consumed by government, there would be no produce. These are reasons for placing the expenditure of government under the head of unproductive consumption.
The revenue of government must be derived from rent, from profits of stock, or from wages of labour.
It is, indeed, possible for government to consume part of the capital of the country. This, however, it can only do for one year, or for a few years. Each year in which it consumes any portion of the capital, it so far reduces the annual produce; and, if it continues, it must desolate the country. This, therefore, cannot be regarded as a permanent source of revenue.
If the revenue of government must always be derived from one or more of three sources; rent, profits, wages; the only questions requiring an answer, are; in what manner, and in what proportion, should it be taken from each?
The direct method is that which most obviously suggests itself. I shall, therefore, first, consider what seems to be most important in the direct mode of deriving a revenue to government from rent, profits, and wages; and, secondly, I shall consider the more remarkable of the expedients which have been employed for deriving it from them indirectly.
Section V. Taxes on Rent
It is sufficiently obvious, that the share of the rent of land, which may be taken to defray the expenses of the government, does not affect the industry of the country. The cultivation of the land depends upon the capitalist; to whom the appropriate motive is furnished, when he receives the ordinary profits of stock. To him it is a matter of perfect indifference; whether he pays the surplus, in the shape of rent, to an individual proprietor; or, in that of revenue, to a government collector.
In Europe, at one period, the greater part of, at least, the ordinary expenses of the sovereign was defrayed by land, which he held as a proprietor; while the expense of his military operations was chiefly defrayed by his barons, to whom a property in certain portions of the land had been granted on that express condition. In those times, the whole expense of the government, with some trifling exception, was, therefore, defrayed from the rent of land.
In the principal monarchies of Asia, almost the whole expenses of the state have in all ages been defrayed from the rent of land; but in a manner somewhat different. The land was held by the immediate cultivators, generally in small portions, with a perpetual and transferable title; but under an obligation of paying, annually, the government demand; which might be increased at the pleasure of the sovereign; and seldom amounted to less than a full rent.
If a body of people were to migrate into a new country, and land had not yet become private property, there would be this reason for considering the rent of land as a source peculiarly adapted to supply the exigencies of the government; that industry would not, by that means, sustain the smallest repression; and that the expense of the government would be defrayed without imposing any burden upon any individual. The owners of capital would enjoy its profits; the class of labourers would enjoy their wages; without any deduction whatsoever; and every man would employ his capital, in the way which was really most advantageous, without any inducement from the mischievous operation of a tax, to remove it from a channel in which it was more, to one in which it would be less productive to the nation. There is, therefore, a peculiar advantage in reserving the rent of land as a fund for supplying the exigencies of the state.
There would be this inconvenience, indeed, even in a state of things, in which land had not been made private property; that the rent of the land, in a country of a certain extent, and peopled up to a certain degree, would exceed the amount of what government would need to expend. The surplus ought undoubtedly to be distributed among the people, in the way likely to contribute the most to their happiness; and there is no way, perhaps, in which this end can be so well accomplished, as by rendering the land private property. As there is no difficulty, however, in rendering the land private property, with the rent liable for a part of the public burdens; so there seems no difficulty in rendering it private property, with the rent answerable for the whole of the public burdens. It would only in this case require a greater quantity of land to be a property of equal value. Practice would teach its value as accurately, under these, as under present circumstances; and the business of society would, it is evident, proceed without alteration in every other respect.
Where land has, however, been converted into private property, without making rent in a peculiar manner answerable for the public expenses; where it has been bought and sold upon such terms, and the expectations of individuals have been adjusted to that order of things, rent of land could not be taken to supply exclusively the wants of the government, without injustice. It would be partial and unequal taxation; laying the burden of the state upon one set of individuals, and exempting the rest. It is a measure, therefore, never to be thought of by any government, which would regulate its proceedings by the principles of justice.
That rent, which is bought and sold, however; that rent, upon which the expectations of individuals are founded, and which, therefore, ought to be exempt from any peculiar tax, is the present rent; or at most the present, with the reasonable prospect of improvement. Beyond this, no man’s speculations, either in making a purchase, or in making provision for a family, are entitled to extend. Suppose, now, that, in these circumstances, it were in the power of the legislature, by an act of its own, all other things remaining the same, to double that portion of the produce of the land which is strictly and properly rent: there would be no reason, in point of justice, why the legislature should not, and great reason, in point of expediency, why it should, avail itself of this, its own power, in behalf of the state; should devote as much as might be requisite of this new fund to defray the expenses of the government, and exempt the people. No injury would be done to the original land-owner. His rent, such as he had enjoyed it, and to a great degree such even as he had expected to enjoy it, would remain the same. A great advantage would at the same time accrue to every individual in the community, by exemption from those contributions for the expense of the government, to which he would otherwise have had to submit.
The legislature may, without any straining of language, be said to possess that power, which I have now spoken of only as a fiction. By all those measures which increase the amount of population and the demand for food, the legislature does as certainly increase the net produce of the land, as if it had the power of doing so by a miraculous act. That it does so by a gradual progress in the real, would do so by an immediate operation in the imaginary case, makes no difference with regard to the result. The original rent, which belonged to the owner, that upon which he regulated his purchase, if he did purchase, and on which alone, if he had a family to provide for, his arrangements in their favour were to be framed, is easily distinguishable from any addition capable of being made to the net produce of the land, whether it be made by a slow or a sudden process. If an addition made by the sudden process might, without injustice to the owner, be appropriated to the purposes of the state, no reason can be assigned why an addition by the slow process might not be so appropriated.
It is certain, that, as population increases, and as capital is applied with less and less productive power to the land, a greater and a greater share of the whole of the net produce of the country accrues as rent, while the profits of stock proportionally decrease. This continual increase, arising from the circumstances of the community, and from nothing in which the landholders themselves have any peculiar share, does seem a fund no less peculiarly fitted for appropriation to the purposes of the state, than the whole of the rent in a country where land had never been appropriated. While the original rent of the landholder, that upon which alone all his arrangements, with respect both to himself, and his family, must be framed, is secured from any peculiar burden, he can have no reason to complain, should a new source of income, which cost him nothing, be appropriated to the service of the state; and if so, it evidently makes no difference to the merits of the case, whether this new source is found upon the land, or found any where else.
If we assume with Mr. M’Culloch,
*1 that the whole of what the land can ever yield, is conferred, in the case supposed, on the owner of the land, by the previous legislation, there is an end of the question; for it is impossible for any one to express a more decided opinion, than I entertain, against partial taxation; against imposing burthens upon the property of any one class more than upon the property of another class. The real question is, whether any thing beyond a certain amount of annual benefit, namely, what is at present derived, with such increase as can be rationally anticipated within the number of years’ purchase for which the land would sell, can, in a really equitable, excluding a merely technical, mode of considering the subject, be regarded as the property of the land-owner. The considerations, which I have adduced, seem to me to establish, that no point of utility would be violated by such a restriction of the meaning of the term as I have proposed.
I utterly disallow the parallelism of the case of capital, which Mr. M’Culloch has adduced; as if because increased profits of stock ought not to be exclusively taxed, therefore the rent, which accrues in the manner above supposed, could not be justly appropriated to the service of the state. Nobody is more aware of the fundamental differences between profits of stock and rent of land than Mr. M’Culloch: it is, therefore, the more surprising that he should have founded his argument on an agreement between them, which does not exist.
Only a few lines before, in the same passage, he recognizes such a distinction between rent and profits, as in my opinion is fatal to his argument. “The circumstance,” he says, “of rent unavoidably rising in the progress of society, inclines us to think that it would be good policy for the governments of countries, such as the United States, which are possessed of large tracts of fertile and unappropriated land, to retain the property of this land in their own hands:” that is, in other words, to reserve the rent for the service of the state. The case of profits is not only different, but the reverse. Instead of rising, in the progress of society, they decrease. Land exists by the gift of nature; capital is the product of human industry. Land is originally not the property of any man; capital always is. The profits of stock must be secured to the owner to afford a motive for its preservation and augmentation. For the preservation of the land, or the augmentation of its produce, it is not of the least importance to whom the rent is consigned. Profits are, in reality, the fund, out of which rent is always taken; and every increase of rent, in the progress of society, is a deduction from profits, in other words, may be regarded as a tax upon profits, not for the benefit of the state, but that of the landlords.
Section VI. A Tax on Profits
A direct tax on profits of stock offers no question of any difficulty. It would fall entirely upon the owners of capital, and could not be shifted upon any other portion of the community.
As all capitalists would be affected equally, there would be no motive to the man engaged in any one species of production, to remove his capital to any other. If he paid a certain portion of his profits, derived from the business in which he was already engaged, he would pay an equal portion, derived from any other business to which he could resort. There would not, therefore, in consequence of such a tax, be any shifting of capital from one species of employment to another. The same quantity of every species of goods would be produced, if there was the same demand for them. That there would, on the whole, be the same aggregate of demand, is also immediately apparent. The same capital is supposed to be employed in the business of production; and if part of what accrued to the capitalist was taken from him, lessening to that extent his means of purchasing, it would be transferred to the government, whose power of purchasing would be thence to the same degree increased.
There would, therefore, be the same demand, and the same supply: there would also be the same quantity of money, and the same rapidity of circulation; and therefore the value of money would remain the same as before.
Section VII. A Tax on Wages
If wages are already at the lowest point, to which they can be reduced; that is, just sufficient to keep up the number of labourers, and no more; the state of wages which seems to have been contemplated, by Mr. Ricardo, throughout his disquisitions on political economy, and which the tendency of population to increase faster than capital, undoubtedly leads us to regard as the natural state; no tax can fall upon the labourer; and if any tax is imposed upon wages, it is easy to trace in what way it must produce a corresponding rise of wages. If wages are as low as is consistent with the preservation of the number of labourers, take any thing away from those wages, and the number of labourers must be reduced. The reduction of the number of labourers must be followed by a rise of wages, and this process must continue till wages rise sufficiently high to be consistent with the preservation of the number of labourers; in other words, just as high as they were before the tax was imposed.
If wages are not at this lowest rate; if they are sufficiently high to afford the labourers something more than what is necessary to keep up their numbers, something which may be retrenched without a diminution of their numbers, they may, to this extent, be made subject to taxation.
Wages, like the price of any other commodity, rise or fall, in proportion as the demand for labour rises or falls, compared with the supply.
When wages are so low as barely to keep up the number of labourers, wages must rise to the amount of any tax imposed upon them, because there is a continued diminution of the supply of labourers till this rise is effected.
In the case of wages above this level, there is no necessary reduction of the number of labourers in consequence of a tax imposed upon wages. There is no alteration, therefore, in the state of supply. From this it follows, that if there is not an increase of demand for labourers, in consequence of such a tax, there can be no rise of wages; and if there be no rise of wages, the tax must fall upon the labourers. The solution, therefore, of the question, whether a tax upon wages falls upon the labourer, depends upon the inquiry, whether there is, or is not, such increase of demand.
An increase of demand for labour can arise from two causes only; either from an increase of capital, the fund destined for the employment of labour; or a difference in the proportions between the demand for the produce of fixed capital and that of immediate labour.
The first of these causes needs no illustration. The operation of the second we proceed to trace. As the demand of a nation consists of a great number of demands of a great number of individuals, the case of one individual will exemplify the whole.
Suppose a man with a certain income; to determine our ideas, let us call it 1000
l. per annum; this is his demand. Let us suppose it divided into two portions, the one of which constitutes his demand for the produce of fixed capital; the other his demand for that of immediate labour: and let us suppose that these proportions are different at two different times. We have to examine what are the consequences.
Let us suppose that, first, he spends 500
l. of this income on the produce of fixed capital; 500
l. on that of immediate labour.
In the first case he purchases commodities only; in the second case he purchases either commodities or services, but gives the same employment to labour whether he purchases the one or the other. If a man makes a basket in a day, for which you pay him a shilling, or weeds in your garden a day at a shillings wages; in both cases the demand you furnish for labour is precisely the same. The 500
l. expended in the produce of immediate labour, is a demand for that number of labourers, whose wages for a year amount to 500
l.; say for 1000 labourers.
If the commodities, made with fixed capital, on which he spends the other 500
l., are made purely with fixed capital; an imaginary case, but which we may suppose, for the sake of illustration; this portion of his income presents no demand for labour at all. The price of the commodities which are thus purchased is wholly made up of profits. It is the result of labour formerly expended, and, with the portion of labour now in the market it has nothing to do.
Suppose that of this 500
l. one half is turned, by a change in the taste of the owner, from the purchase of commodities, the produce of fixed capital, to the purchase of the produce of immediate labour. Two things happen: a demand is created for 250
l. worth of mere labour: a demand is annihilated for 250
l. worth of the produce of fixed capital; that is to say, as much of the capital of the country as yielded 250
l. or profits, becomes useless. This is entirely distinct from a fall in the rate of profits. Such a fall may or may not accompany such a change in the two species of demand. This is a loss of capital. Capital, to this extent, ceasing to be employed, ceasing to be needed, is, to any useful purpose, destroyed. Along with it there is destroyed a productive power to the extent of 250
l. per annum. This is not compensated by any new production; for by the supposition the number of labourers is not increased. Every labourer that is employed, under the new application of this 250
l. of the supposed income, would have been employed if the new application had not taken place, if the capital had not been destroyed.
Under the new distribution of the 1000
l. income, as much is awarded to the class of labourers, as is taken from the class of capitalists. 250
l. were formerly awarded as profits, which are now awarded as wages. So far, there is no absolute loss, as much being gained by one, as lost by another. The loss arises from this, that, while no new labour is brought into employment, and no addition is made to the productive powers of labour, nor of course to its produce, a portion of capital is thrown out of employment, its productive powers are lost, and the annual produce of the country is diminished.
This case is reversed when machinery is invented which performs the work of immediate labour. Let us make the same supposition of the extreme cases as before; that the machine invented performs the functions of labour without the aid of labour, that the produce is purely the result of capital. Let us suppose a capital of 10,000
l.; wholly, in the first instance, employed in the payment of wages. Let us suppose that this 10,000
l. is afterwards expended in making a machine which produces the same commodity, and the same quantity of it. In this case the whole of the labourers who received the 10,000
l. of wages, are deprived of their old employment. The consequence is, not that they are thrown out of employment, but that they increase the supply of labour in the market and reduce wages. The labourers, in this case, do not necessarily cease to produce; they produce just as much as before. The whole of the produce of the machine, therefore, is a new production, an addition to the former amount of the annual produce.
Compare now the two cases; the case where the demand for the produce of fixed capital is diminished, and that for immediate labour is increased; and the case where the demand for the produce of fixed capital is increased, and that for immediate labour is diminished. In the first there is a rise of wages, and a diminution of profits, and so far there is compensation: but there is besides this a defalcation of production to the extent of the productive powers of all the capital superseded; and this is a dead loss. In the second case, there is a fall of wages, and a rise of profits, so far again there is compensation; but in this case there is an increase of production to the extent of the productive powers of the whole of the fixed capital created. This is a new fund for the employment of labour, and as far as it goes, prevents the fall of wages.
Having thus illustrated the only case in which an increase of demand for labour can take place, without an increase in the amount of capital, which in the case before us is not supposed, we are prepared to see where an increase of demand for labour, in consequence of a tax upon wages, can, and where it cannot, exempt the labourer from the tax.
The effect of a tax upon wages, when wages are so high as to be capable of being affected by a tax, is, to transfer a certain power of commanding the produce of labour and capital from the class of labourers to the government. With the amount of the tax, before it was taken from the labourers, they presented a demand for so much of the operations of fixed capital, so much of those of immediate labour. Where the same amount is transferred to the government, the government presents in like manner a demand for so much of the operations of fixed capital, so much of those of immediate labour. If the proportions of the demand for the produce of fixed capital and immediate labour were the same in both cases, there would be no alteration in the demand for labour, in consequence of the tax, and the whole of it would fall upon the labourers. If the government presented a greater demand for the produce of immediate labour, less for that of fixed capital, than was presented by the labourers, there would so far be an increase of demand for labour, and a rise of wages, which would so far be a compensation to the labourer for the tax, at the expense, however, of profits, and with an uncompensated loss to the extent of all the produce which the superseded capital would have yielded.
Properly speaking, however, this rise of wages is not an effect of the tax upon wages. It is the effect of a very different cause; of a supposed peculiarity in the nature of the government expenditure. When we are talking, therefore, of the effect of a tax upon wages, in increasing or diminishing the demand for labour, this extraneous circumstance, which may or may not be concomitant, ought to be left out of the account. The only essential effect of a tax upon wages is to take so much from the labourer, just as a tax upon profits takes so much from the capitalist, a tax upon rent takes so much from the landlord.
It is further essential to this question to observe, that the effect of the government expenditure in raising wages, by furnishing a greater demand for immediate labour, less for the produce of fixed capital, would take place equally if the tax were levied upon profits, or upon rent. If this is the effect of the expenditure of government, upon whatever source of income the tax is levied, to lay the tax upon wages is only to prevent the labourer from reaping the benefit of that rise of wages, the full benefit of which he would otherwise enjoy. In this sense, therefore, also, and, when this is included, all are included, it is evident that the tax really falls upon the labourer.
The argument may be shortly stated thus. Before the tax, a certain demand existed for labour; arising, in part from the funds of the landlord, in part from those of the capitalist, and in part from those of the those labourer. After the tax the two former remain the same. But the demand arising from the funds of the labourer is diminished. If this loss of demand were not compensated, the labourer would sustain two evils in consequence of the tax. He would pay the tax; and his wages would fall. The second of these evils he does not sustain, because the diminution of demand on the part of the labourers is compensated. The increase of demand on the part of government is exactly equal to the diminution of the demand on the part of the labourers. This prevents wages from falling, but it does no more. It yields nothing in compensation for the tax.
Section VIII. Direct Taxes Which Are Destined to Fall Equally Upon All Sources of Income
Assessed taxes, poll taxes, and income taxes, are of this description. After what has been said, it is not difficult to see upon whom, in each instance, the burden of them falls.
In as far as they are paid by the man, whose income is derived from rent, or the man whose income is derived from profits of stock, the burden of them is borne by these classes. No additional demand arises from the tax; and, therefore, neither can landlords raise their rents, nor capitalists the price of their commodities.
In respect to the labourer, the result is different in different cases. If his wages are already at their lowest rate, no portion of such tax can fall upon him. His wages will rise, and throw his share upon the capitalist. If the wages of the labourer are sufficiently high, he will sustain his share of the burthen.
The effect of these taxes upon prices may be easily ascertained. A tax upon rent would produce no alteration in the price of any thing. Rent is the effect of price; and the effect cannot operate upon the cause. A tax upon profits would alter prices, only as a tax upon wages alters them.
Of the tax upon wages, there are two cases; that in which it raises wages, and that in which it does not raise them. In the case in which it does not raise them it will hardly be supposed that any alteration of prices should ensue. The capital of the country is not supposed to undergo any alteration, nor, of course, the quantity of produce. With respect to the demand, a portion of the power of purchasing, which belonged to the labourers, is taken from them: but the whole of what is taken from them is transferred to the government. Government may send abroad the amount of the tax. If we suppose, however, that it sends it abroad in goods, it is evident, that no diminution of prices will ensue. And if it sends it abroad in bullion, the case, in the long run, is the same; for as the vacuity which is thus made in the bullion market, is to be supplied, goods must go abroad to purchase it. The exportation of the bullion, if it diminishes the quantity of money, will produce a temporary depression of price. But the same effect would follow from the same cause on any other occasion.
In the case in which wages do rise, it may also be seen, that the capital and produce of the country remain the same, the amount of demand and supply the same, and the value of money the same. The aggregate of prices, therefore, one thing being compensated by another, is the same. That change, indeed, which takes place in the relative value of certain kinds of commodities, as often as wages rise and profits fall, is necessarily produced on this occasion. Those commodities, which are chiefly produced by fixed capital, and where little payment of wages is required, fall in price, as compared with those in producing which immediate labour is the principal instrument, and where little or nothing of fixed capital is required. The compensation, however, is complete; for as much as the one of these two sets of commodities falls in price, the other rises; and the price of both, taken aggregately, or the medium of the two, remains the same as before.
The several species of property, which, in the ordinary and coarse application of language, pass under the name of income, are exceedingly different. This gives occasion to a question, whether it is equitable to levy the same rate of tax upon all incomes. The question, however, in what proportion taxes ought to fall, is rather a question of general policy, than of political economy; which, in regard to taxes, confines itself to two questions: first, on which of the three original shares of the annual produce, rent, wages, or profits, a tax falls: and next, whether it operates unfavourably on production. As this question, however, is generally introduced into books on political economy, it is proper here to point out the way to its solution.
The grand distinction of incomes, as regards this question, seems to be, the value of them. All property may, with trifling exceptions, be regarded as income. But the value of incomes depends upon two circumstances: first, upon what is called their amount, as 100
l. per annum or 1000
l. per annum; secondly, their permanence and certainty. Thus the value of a man’s property is ten times as great, if he has 1000
l. a year, as if he has 100; but that only if the permanence and security are equal; for if 100
l. a year is secure for ever, while 1000
l. a year is only to endure for a few years, the 100
l. a year will be the more valuable property of the two. That, on the occasion of imposing a tax, property is to be estimated, according to one of the elements of its value, and not according to all of them, is a proposition which ought not to be admitted except on very substantial grounds.
Let us suppose, that one man’s income is 100
l., the rent of land; that another man’s income is 500
l., the salary of his office, depending not only upon his life and health, but in some degree upon the pleasure of his employers. The first will be worth 30 years’ purchase; the last, in certain circumstances, not worth more than six. The real value of the property of these two men will, in these circumstances, be the same; and upon the principle of equal burthens upon equal property, the tax upon these ought to be the same.
It is true that, if the tax, proportional to the amount, is paid for 30 years upon the 100
l. and six years upon the 500
l. the amount of tax will be the same. But this, as a principle of taxation, is liable to this objection; that it excludes from consideration that, to which all consideration should tend, individuals, and their feelings.
There is another point of view in which we must consider the question. The period of enjoyment of the man whose income is 100
l. in rent, may be as short as that of the man whose income is 500
l. in salary; the life of the first may not be worth a greater number of years’ purchase than the salary or the second.
In this way, undoubtedly, all incomes may be regarded as measured by the life of the individual.
It may also be affirmed, that, in like manner as the income of the man, who draws rent, passes to his descendants; so the income of the man who draws salary, passes to his successors. Strictly speaking, the two species of income are both equally permanent: the rent flows in a permanent stream, through one generation after another, and so does the salary. It would follow, therefore, that if rent were taxed at one rate, salaries at another, there would be two perennial streams of income, taxed in different degrees, the one more, the other less heavily.
This is true, and the only reason for such difference is, the difference of those who succeed to the incomes. In the case of income derived from land or from capital, the income passes to a man’s children, to the persons most dear to him: in the case of salaries, it passes to those, with whom the man has no connexion. Whether this reason is sufficient, requires to be considered. There can be no doubt that in regard to feelings, in regard to the happiness of the individuals, it makes a great difference, whether their incomes are to pass to their children at their deaths, or to their successors, in their offices, or their professions. On this score it would seem to be required by the principle of all good legislation, that a corresponding difference should be observed in the imposition of taxes.
This, however, would be a step, it is said, towards the equalizing of fortunes. It would lessen the incomes of the descendants of the owners of permanent incomes, in order to increase those of the descendants of persons with life incomes. This is liable to the same objections as raising the scale of taxation, in proportion to the scale of income; taxing commodities, for example, higher to the man of 1000
l., than to the man of 100
l. a year. It would lessen the motive to make savings, by lessening the value of great accumulations. It is to be inquired whether this allegation is well founded.
A tax, to operate fairly, ought to leave the relative condition of the different classes of contributors the same, after the tax, as before it. In regard to the sums required for the service of the state, this is the true principle of distribution.
In the case of incomes of different permanency, what does leave the relative condition the same?
It is quite clear, that the prospect for a man’s children is one part of that condition. If a tax so operates upon two classes, as to reduce the condition of the children of the one class lower, as compared with the condition of the children of the other class, than it would otherwise be, it does not leave the relative condition of those two classes the same.
Suppose two men, each of 1000
l. a year, the one rent, the other salary; the latter worth 15 years’ purchase. Suppose that to make a provision for his children, the man with the salary saves one-half; the man with the rent spends all. With respect to expenditure, the man with the salary stands to the other in the relative condition of a man of half the income.
Next let us examine how it is with the children. The annual sum of 500
l. saved for 15 years, at compound interest, would amount, say, to 10,000
l. This at 5 per cent. interest, would afford a perpetual income to the children of the man with the salary of 500
l. a year. The children of the man with the rent would have 1000
l. In this way, as the father’s condition was that of a man with half the income, so is that of the children.
It is perfectly plain, therefore, that if the one is taxed at more than one half the rate of the other, he is taxed too high. The salary we supposed to be worth 15 years’ purchase: the rent is worth 30: one half is here also the proportion. It therefore points out the rule. If one income is worth half as many years’ purchase as another, it ought to be half as much taxed; if it is worth one-third of as many years’ purchase, it ought to be taxed one-third, and so on.
It may be said, that if the class who live upon salaries are loaded with more than their due share of the burthen, the balance will adjust itself; because, the situation having been rendered less desirable, fewer people will go into it, and the salaries will rise. This does not remove the objection. For, first of all, why should legislation disturb the natural proportion, in order that the force of things may restore it? In the next place, the restoration of the equilibrium in this case is a slow operation. It requires a generation to pass away before the diminution of the numbers of those who live upon salaries can raise their condition. A whole generation is therefore sacrificed.
Section IX. Taxes on Commodities; either Some Particular Commodities; or All Commodities Equally
Taxes on commodities may either affect some particular kinds, or all commodities equally.
When a tax is laid on any particular commodity, not on others, the commodity rises in price, or exchangeable value; and the dealer or producer is reimbursed for what he has advanced on account of the tax. If he were not reimbursed, he would not remain upon a level with others, and would discontinue his trade. As the tax is, in this case, added to the price of the goods, it falls wholly upon the consumers.
When a tax, in proportion to their value, is laid upon all commodities, there is this difference, that no one commodity rises in exchangeable value, or, as compared with another. If one yard of broad cloth was equal in value to four yards of linen, and if a duty of ten percent. on the value were laid upon each, a yard of cloth would still be equal to four yards of linen.
ad valorem duty upon all commodities would have the effect of raising prices, or their value in relation to money.
The members of the community would come to market, each with the same quantity of money as before. One-tenth of it, however, as it came into the hands of the producers, would be transferred to the government. But it would again be immediately laid out in purchases, either by the government itself, or by those to whom the government might dispose of it. This portion, therefore, would come into the hands of the producers oftener by once, after the tax was imposed, than before. Before the tax was imposed, it came once into the hands of the producers, from those of the purchasers of goods. After the tax was imposed, it would come into the hands of the producers in the same manner: but it would go from them to the government, and from the government come back into the hands of the producers a second time.
The producers, in this manner, would receive for their goods, not only the whole ten-tenths of the money of the country, as before; but they would receive one-tenth twice, where they received it only once before. This is the same thing exactly as if they had received eleven-tenths, or as if the money of the country had been increased one-tenth. The purchasing power of the money, therefore, is diminished one-tenth; in other words, the price of commodities has risen one-tenth.
Upon whom the tax would, in that case, fall, is abundantly obvious. The purchasers would come with the same quantity of money as before. The purchasing power of that money, however, would be reduced one-tenth, and they would be able to command one-tenth less of commodities than before. The tax would, of course, fall upon purchasers.
As this argument has not produced, in some minds whose decisions I highly respect, the same conviction which it has in my own, I will endeavour to render it still more perspicuous, by recurrence to one of the simplest possible cases.
Let us suppose a community of 10 persons, with only two species of commodities, bread, and meat. Let us suppose that 5 of those persons have 5 loaves to dispose of, and that the other 5 have 5 pounds of meat, the value of a loaf the same as that of a pound of meat. Let us suppose that the exchange takes place, as in a more complicated state of things, by the intervention of money; and, as the simplest possible case, let us suppose that the whole of the goods is exchanged against the whole of the money; in other words that one exchange of the whole of the goods is performed by one operation of the money. If each loaf is worth 10 pence, and each pound of meat the same, it is necessary, under this supposition, that the 5 persons having the 5 loaves of bread should have 50 pence, and the persons having the 5 pounds of meat should have 50 pence.
It is obvious that the persons having the 5 loaves, going to market with 50 pence to buy the 5 pounds 9 of meat, will pay for it at the rate of 10 pence per pound, and that the persons with the meat, going to market for the bread, will pay for it at the rate of 10 pence the loaf. If we suppose that the production of the loaves and the meat is perpetually renewed, it is evident that the same exchanges, at the same money price, may take place for ever. All this, I think, is clear.
Let us then suppose, that government taxes these commodities 10 per cent, and observe attentively what happens. When the first loaf of bread is sold for 10 pence, one penny out of the 10 pence received is paid by the seller to the government, and when one pound of meat is sold, one penny out of the 10 pence received is in like manner paid to the government. By the time that one exchange of all the commodities is effected, one-tenth of the money has been paid to government. With the money, government, as fast as it received it, has come into the market to purchase the same goods. The former purchasers came with all the former quantity, namely, with 100 pence, government came with a tenth more. For the same quantity of goods, therefore, for which 100 pence were paid before, 110 pence have been paid now; it is therefore proved that the price of goods is raised at the rate of the tax. The reason is, that one portion of the money which only performed one operation, in effecting one exchange of the goods, now performs two operations.
The case would be precisely the same, if we supposed the rapidity of circulation to be much greater, and that each piece of money had to perform 10 operations in order to effect one exchange of the whole of the commodities. It is necessary to observe that this is the only correct meaning of the term rapidity of circulation. This is the only meaning in which rapidity of circulation has any effect upon the value of the money. This is strictly, therefore, the sense in which the term is here employed. If we suppose that in order to perform one exchange of the whole of the commodities, the money has to be exchanged 10 times, it is obvious, as before explained, that it exchanges each time for precisely one-tenth of the goods. Let us conceive that the bread and the meat, supposed in the former case, are 10 times as great, the loaves 50, and the pounds of meat 50, the money remaining the same, but performing 10 operations to effect one exchange of the whole. It is very obvious that the effect which we have just explained, as taking place, in consequence of the tax, upon the whole of the goods, when the whole was exchanged by one operation of the money, will now take place upon the one-tenth of the goods which is exchanged by one operation of the money; it will be raised one-tenth in money value; each tenth will be so raised; and therefore by necessary consequence the whole.
Section X. A Tax Upon the Produce of the Land
A tax upon the produce of land, a tax upon corn, for example, would raise the price of corn, as of any other commodity. It would fall by consequence, neither upon the farmer, nor upon the landlord, but upon the consumer. The farmer is situated as any other capitalist, or producer; and we have seen sufficiently in what manner the tax upon commodities is transferred from him that produces to him that consumes.
The landlord is equally exempted. We have already seen that there is a portion of the capital employed upon the land, the return to which is sufficient to yield the ordinary profits of stock, and no more. The price of produce must be sufficient to yield this profit, otherwise the capital would be withdrawn. If a tax is imposed upon produce, and levied upon the cultivator, it follows that the price of produce must rise sufficiently to refund the tax. If the tax is 10 per cent. or any other rate, upon the selling price, corn must rise in value one-tenth, or any other proportion.
In that case it is easy to see, that no part of the tax falls upon the landlord. It is the same as if one-tenth of the produce were paid in kind. In that case, it is evident, that one-tenth less of the produce would come to the landlord; but as it would rise one-tenth in value, his compensation would be complete. His rent, though not the same in point of produce, would be the same in point of value.
If, instead of a money-tax, varying according to price, it were a fixed money-tax upon the bushel, or the quarter, the money-rent of the landlord would still be the same. Suppose the land or capital, which, as explained above, yields no rent, to produce in all two quarters, that which does yield rent to produce six quarters; four quarters, in that case, are the share of the landlord. Suppose the tax per quarter to be 1
l.; corn must rise 1
l. per quarter. The farmer, before the imposition of the tax, paid the landlord the price of four quarters; after it, he pays him the price of four quarters, deducting 1
l. per quarter for what he had paid as tax. But corn has risen 1
l. per quarter. He, therefore, pays him the same sum as before.
Section XI. A Tax Upon the Profits of the Farmer, and Upon Agricultural Instruments
If a tax were imposed upon the profits of the farmer, without being imposed upon the profits of any other class of producers, the following would be its effects.
It would in the first place raise the price of raw produce; because that price is determined by the produce of the capital which pays no rent, and which, if it sustains a tax, must rise like any other taxed commodity, to indemnify the producer.
In consequence of this rise of price, it would increase the rent of the landlords. Suppose that capital is employed on the land in this case under three degrees of productiveness: the most productive portion yielding 10 quarters, the second 8, and the last 6. A landlord who had land cultivated under these circumstances, would receive at the rate of 6 quarters of corn as rent. 4 produced by the first portion, and 2 by the second. Suppose a tax imposed such as to raise the price of corn 5 per cent.: it leaves the 6 quarters of corn, accruing to the landlord, the same as before; but the value of these 6 quarters is 5 per cent. higher; the landlord’s rent, therefore, is increased 5 per cent.
The difference between this case, and those treated of in the preceding section, is, that the landlord’s portion of the produce is not taxed, when the profits of the farmer are taxed.
A tax upon the instruments of agriculture, is the same thing in effect, as a tax upon the profits of the farmer. It raises the value of produce, without affecting the quantity which goes as rent to the landlord. Thus, if a tax is laid upon agricultural horses, it increases the expense of production to the farmer, just as a tax upon coals would increase the cost of production to the iron-founder. For this cost the farmer can only be indemnified by a rise in the price of the produce. The quantities, however, of the corn, the 10, the 8, the 6 quarters, yielded to the different portions of his capital, are not affected. Six quarters of corn are the rent of the landlord, the same as before. Not only, therefore, does the whole of the tax fall upon the consumer, but he is charged with another burthen, the additional rent which is paid to the landlord. The community is taxed, in part for the use of the government, in part for the benefit of the landlords.
Section XII. Tithes and Poor Rates
Tithes are a tax upon the produce of the land; a tenth of the produce, perfectly or imperfectly collected.
The operation, therefore, of this tax, has been already ascertained. It raises the price of produce, and falls wholly upon the consumer.
If the poor rate were levied in proportion to profits upon farmers, manufacturers, and merchants, it would be a tax upon profits. If it were levied in proportion to the rent of land, it would be a tax upon the rent of land. If it were levied upon the rent of houses, it would fall upon the inmates, and be a tax upon income. From the mode in which it is levied, it is drawn in part from all these sources. If it falls disproportionately upon the profits of any one class of capitalists, that class receives compensation. If the farmers, as is usually supposed, pay a higher rate for the maintenance of the poor than other producers, this, as far as the excess extends, is the same thing as a separate and additional tax upon them. But if a separate tax is laid upon the farmers, we have already seen that it operates immediately to raise the price of corn sufficiently high to afford them compensation for the tax, and raises the rent of the landlords. It is to them a benefit, not a burthen.
Of all taxes which raise the price of corn, one effect is remarkable. As a certain quantity of corn is necessary to the subsistence of the labourer his wages must be competent to the purchase of that quantity. They must often, therefore, rise as the price of that quantity rises. But we have already seen, that, in proportion as wages rise, profits fall. A tax upon corn, therefore, operates upon all men as consumers. Upon capitalists it is apt to operate in two ways; it is, first, a tax upon them as consumers; and, secondly, it has often the same effect upon them as a tax upon their profits.
Section XIII. A Tax per Acre on the Land
We have already considered in what manner a tax, laid upon the land, and proportioned to the rent; in what manner a tax laid upon the land, and proportioned to the produce; and in what manner a tax laid upon the land, and proportioned to the farmer’s profits, would operate. The first would be a tax upon the landlord; the second would be a tax upon the consumer, and would not affect the landlord; the third would be a tax upon the consumer, and would benefit the landlord. A tax may also be laid upon the land at so much per acre.
We have seen that there is a portion of capital employed upon the land, the return to which is sufficient to afford the ordinary profits of stock, but nothing more. If any addition is made to the cost of producing, a rise of price must afford compensation. If no addition is made to such cost, price will not be affected.
If a tax is laid, at so much per acre, on land, both cultivated, and uncultivated, no addition will be made to the cost of producing. There are two cases in which portions of capital are employed on the land, without yielding more than the ordinary profits of stock; of course yielding nothing for rent: the one is, where, after two or more doses of capital have been bestowed upon land, each yielding less than the former, a third or a fourth comes to be employed; the other is, where, after land of the second or third degree of fertility has been exhausted, cultivation is forced upon land of a still inferior quality.
It is evident, immediately, that a tax on the acre does not affect the cost of production, when a subsequent dose of capital is employed upon the same land; because the tax is already paid; and it is, therefore, the interest of the farmer to apply a second dose, as soon as the price of produce has risen sufficiently high to afford him a full profit and nothing more.
When capital is applied to new land of inferior quality, upon which the tax was previously paid, the cultivator receives his remuneration the moment produce rises sufficiently high to afford the profits of the stock which the cultivation may require; and no allowance is to be made for a tax which does not depend upon the cultivation.
When the tax is levied only on cultivated land; as capital passes downwards from the more fertile land which has been cultivated before, to the less fertile, which has not been cultivated, the tax likewise descends. The produce to be raised must yield, not only the ordinary profits of stock, but the tax also; such land will not be cultivated till the price of produce has risen sufficiently high to yield that accumulated return. The tax, therefore, is included in the price.
The consequence, with regard to the landlord, is beneficial. Suppose that land of the third degree of fertility is the last to which cultivation has descended; that such land yields at the rate of two quarters per acre, land of the next degree above it at the rate of four quarters, and land of the first degree of fertility six quarters; in this case, it is evident, that two quarters upon each acre affords both the tax, and the remuneration to the farmer. The landlord, therefore, may derive two quarters from the acre of second quality, four quarters from the acre of first. He draws this quantity of produce, in both cases; as well when such a tax is levied, as when it is not levied. But in the case of the tax, the price is raised, and each of his quarters of corn is of greater value. Such a tax would, therefore, raise upon the consumers, not only so much per acre to the government, but a great deal more for the benefit of the landlords.
One effect, however, of this tax would be, to retard the descent of capital to the inferior species of land. So long as fresh doses of capital, upon the land already in cultivation, were not diminished in productive power, to the whole extent of the tax, below what would be the productive power of capital employed upon the best of the uncultivated land, no capital would be employed upon it, and, during that interval, the cost of corn would be raised to the consumer, and additional rent would go to the landlord, without affording any revenue to the state.
When first imposed, such a tax would have the effect of throwing an inferior species of land out of cultivation, wherever an additional dose of capital, on the better land, would not in productive power fall below that, which had gone to the worse land, to an extent equal to the tax. This would still raise the price of corn, because, by the supposition, the last portion of capital would be less productive than before; it would also increase the rent of landlords, but not so much as the full operation of the tax.
Section XIV. Taxes Upon the Transfer of Property
Taxes upon the transfer of property are of several kinds; such as stamp duties upon purchase and sale, legacy duties, duties upon the writings required in the conveying of property, and others of the same nature.
In the case of all that property, which is the produce of labour and capital, the tax upon purchase and sale falls upon the purchaser, because the cost of production, including the profits of stock, must be afforded along with the tax.
Taxes upon the transfer of land, which is a source of production, and not the effect of labour and capital, fall upon the seller; because the purchaser considers what benefit he could derive from his capital employed in another way; and if the land will not afford him an equivalent, he will refuse to exchange it for the land.
Legacy duties, and duties upon free gifts, fall, it is evident, upon the receivers.
Section XV. Law Taxes
Taxes upon proceedings at law are levied chiefly in the form of stamps, on the different writings employed in the business of judicature; and in that of fees on the several steps and incidents of the judicial procedure.
It is evident enough that they fall upon the suitors. It is equally evident that they are a tax upon the demand for justice.
Justice is demanded in two cases; either that, in which it is a matter of doubt to which of two persons a certain right belongs; or that, in which the right of some person has been violated, and a remedy is required.
There is no peculiar propriety in taxing a man, because he has a right, which, unfortunately for him, is disputed. But there is the greatest of all improprieties in taxing a man, because he has sustained an act of injustice.
It is very evident that all such taxes are a bar in the way of obtaining redress of injury; and just in so far as any thing obstructs the redress of injury, injustice is promoted. A tax upon justice, therefore, is a premium upon injustice.
Section XVI. Taxes on Money, and the Precious Metals
A tax upon money cannot be conveniently levied, excepting either upon the occasion of its coinage, or that of the first acquisition of the bullion. It might be levied upon the bullion, either upon its importation from abroad; or, if the mine were within the country, upon its issuing from the mine.
A tax upon coinage is the same thing, in effect, with what has been called a seignorage. It is the paying of something more for the coins, than the quantity of bullion of which they are composed.
The effect of this is evident, when a currency consists entirely of the metals. No man will carry bullion to be coined, unless the metal in the coin is of as much more value than the bullion, as the amount of the tax. The currency, therefore, is raised in value; that is to say, the metal in the state of currency is raised in value, to an amount equal to that of the tax.
This is a tax which possesses the peculiar property of falling upon nobody. It falls not upon the man who carries bullion to be coined, because he carries it only when the coins are equal in value to the tax and bullion together. It falls not upon the persons to whom the coins are paid as the medium of exchange; because they are of the same value to them as if they contained the whole of the bullion for which they will exchange.
This is a tax, therefore, which ought always to be carried as far as the peculiar limit to which it is subject will admit. The limit to which it is subject, is the inducement to illicit coining. If the tax is raised so high as to pay the coiner for his expenses and the risk of detection, illicit coinage is ensured.
In a country, in which paper circulates along with gold, the paper has a tendency to prevent the effect of a seignorage.
It is the interest of those who issue paper, to maintain in circulation as great a quantity of it as they can. They may go on increasing the quantity, till it becomes the interest of those who hold their notes to bring the notes to them for coins.
It is the interest of those who are the possessors of notes, to carry them to the bank for coins, only when there is a profit by melting. The coins, as coins, are not more valuable than the paper, so long as they circulate, without a premium, along with the paper. But if the paper has been issued in great quantity, the value of the currency may be so reduced, that the metal in the coins may be of more value as bullion than as coin. Melting for the sake of this profit, is the only check upon the quantity of a paper money convertible into coins at the option of the holder.
It is very obvious, that if coins are issued under a seignorage, with the metal in the coins of greater value than the metal in the state of bullion, the coins can be retained of that value only if the currency is limited in amount. When paper is issued without restriction, that limit is removed. The paper issued increases the quantity of currency, till the metal in the coins is reduced, first to the same value as that in bullion, next to a less value. At that point it becomes the interest of individuals to demand coins at the bank, for the purpose of melting; and then it is the interest of the bank to contract its issues.
A very simple, however, and a very effectual expedient, is capable of being adopted, for preventing this effect of a paper currency. That is an obligation on the bank to pay for its notes, either in coins, or in bullion, at the option of the holder. Suppose that an ounce of gold is coined into 3
l., deducting five per cent. for seignorage, and suppose that a bank which issues notes is bound to pay, on demand, not only 3
l. of coins, but an ounce of bullion, if preferred; it is evident that the bank, in that case has an interest in preventing the currency from sinking in value. If the currency is so high in value that 3
l. of currency is really equal in value to an ounce of bullion, the bank loses nothing by being obliged to give for it an ounce of bullion; if it is so depressed in value that 3
l. is not worth an ounce of bullion, it does lose. The check upon the issue of paper is thus made to operate earlier.
A tax upon the precious metals, when imported, or extracted from the mines, would, as far as the metals were destined to the ordinary purposes of use or ornament, fall upon the consumers: it would, as far as the metals were used for currency, fall upon nobody.
It would raise the exchangeable value of the metal. But a smaller quantity of a valuable metal is not less convenient as the medium of exchange, than a greater quantity of a less valuable. It would be expedient, therefore, to derive as much as possible from this source. The facility, however, of carrying and concealing a commodity which involves a great value in small dimensions, renders it a source from which much cannot be derived. Under a very moderate duty, illicit importation would be unavoidable.
Though a tax upon the precious metals, as imported, or issued from the mines, would, like all other taxes upon particular commodities, fall ultimately upon the consumer, it would not do so immediately. That which enables the producers, when a tax is laid upon any commodity, to throw the burden upon the consumers, is the power they have of raising the price, by lessening the supply. Of most commodities, the quantity in use is speedily consumed. The annual supply bears, therefore, a great proportion to the quantity in use; and if it is withheld, or only a part of it withheld, the supply becomes so far diminished as greatly to raise the price. The case is different with the precious metals. If the annual supply were wholly withheld, it would, for some time, make no great defalcation from the quantity in use. It would, therefore, have little effect upon prices. During that interval the sellers of the metals would not be indemnified. During that time, more or less of the tax would fall upon them.
The same observation applies to houses, and all other commodities of which the quantity in use is great in proportion to the annual supply.
Section XVII. Effects of the Taxation of Commodities Upon the Value of Money, and the Employment of Capital
Capital is most advantageously employed, when no inducement whatsoever is made use of to turn it out of one employment into another. It is most advantageously employed, when it follows that direction which the interest of the owners would give to it of its own accord.
Suppose that broad cloth is in England twenty shillings per yard; that linen, if made at home, would be three shillings per yard: that in Germany, on the contrary, linen is at two shillings per yard; and that broad cloth, if made there, would be twenty-four shillings per yard.
It has been already seen, how, in these circumstances, it would be the interest of England to employ her labour in making broad cloth for Germany, instead of linen for herself; and that of Germany, in making linen for England, instead of broad cloth for herself.
If, in these circumstances, a tax in England were laid upon broad cloth, which raised the price to twenty-four shillings, what would be the consequence?
In the first place, it is evident, that no broad cloth could be exported to Germany. The price, however, of linen, would still be so low in Germany, that it would be imported into England. Money, instead of cloth, would go abroad to pay for it. Money, therefore, would become comparatively scarce in England; and prices would fall. It would become comparatively abundant in Germany, and prices would rise. Linen would, therefore, become too dear to be imported into England; unless in the mean time some other commodity, in consequence of the increasing value of money, became cheap enough in England to allow exportation. In the first case, England would, by a tax upon her own broad cloth, be deprived of the advantage of obtaining cheap linen from Germany, and would be obliged to produce it for herself. In the other case, she would be compelled to export, in exchange for the linen, another commodity, which, by the supposition, she produced on less favourable terms than the first.
In this manner it is evident that, by a tax imposed upon broad cloth, the people of England would suffer, not only by paying the tax upon broad cloth, but by being obliged to pay more also for their linen.
The effect of this tax upon prices would be, to raise the money value of broad cloth, and to lower the money value of all other commodities: not to raise, at least permanently, the price of cloth to the whole amount of the tax; because it would send part of the money out of the country: to lower the price of all other commodities, because by this departure of the money, the value of money would be raised.
If, when the tax was imposed upon broad cloth, a drawback of the whole of the duty was allowed upon exportation, there would be no alteration in the trade with Germany; English broad cloth would be sent there, and linen would be imported, on the same terms as before. The people of England would sustain the burden of the tax, and would suffer no other injury. There would be no transit of the precious metals. The price of broad cloth would be raised in England: and the price of all other things would remain as before.
Even if no drawback were allowed, taxes have not a necessary tendency to lessen the quantity of foreign trade. Though England, as in the case already supposed, were hindered, by the tax on broad cloth, from exporting broad cloth; she might soon, by the transit of money, have it in her power to export some other commodity. The reason of this case, it will easily be seen, applies to all other cases. A highly taxed country may possibly export to as great an extent as if she had not been taxed at all. If care, however, has not been taken, and it seldom is taken, to compensate exactly for established duties by countervailing duties and drawbacks, it does not export with the same advantage.
There are two cases, in which the money cost of commodities may be raised by taxation: that in which commodities to any number are taxed one by one, as in the instance, just adduced, of broad cloth; and that in which all commodities are taxed by an
ad valorem duty. In neither of these cases, it will be seen, has the high price of commodities, in other words, the low purchasing power of money, a necessary tendency to send money out of the country.
In the case adduced above, the broad cloth alone was enhanced in price by the tax. The purchasing power of money was lessened, therefore, only in respect to broad cloth. But money could not go out of the country with any greater advantage to purchase broad cloth; because that commodity, on importation, would have to pay the tax; and there would not be a new distribution of the precious metal, if the tax were drawn back.
Neither would an
ad valorem duty, though it would raise, in the manner already explained, the price of all commodities, and reduce the purchasing power of money, have a tendency to send money out of the country. Suppose the duty ten per cent; and the purchasing power of money reduced as much below the level of the surrounding countries. It would be of no avail to the merchant that his money would purchase ten per cent. more of goods abroad, if he were obliged to pay ten per cent. duty upon their importation. It thus appears, that, if drawbacks and countervailing duties are applied upon exportation and importation, the price of commodities in one country may be raised to any extent above their price in the surrounding countries.