through habit, or from unwillingness to submit to impoverishment, and so the capitalists might continue to bear the whole of the tax.
§ 4. —on Wages.
We now turn to Taxes on Wages. The incidence of these is very different, according as the wages taxed as those of ordinary unskilled labor, or are the remuneration of such skilled or privileged employments, whether manual or intellectual, as are taken out of the sphere of competition by a natural or conferred monopoly.
I have already remarked that, in the present low state of popular education, all the higher grades of mental or educated labor are at a monopoly price, exceeding the wages of common workmen in a degree very far beyond that which is due to the expense, trouble, and loss of time required in qualifying for the employment. Any tax levied on these gains, which still leaves them above (or not below) their just proportion, falls on those who pay it; they have no means of relieving themselves at the expense of any other class. The same thing is true of ordinary wages, in cases like that of the United States, or of a new colony, where, capital increasing as rapidly as population can increase, wages are kept up by the increase of capital, and not by the adherence of the laborers to a fixed standard of comforts. In such a case, some deterioration of their condition, whether by a tax or otherwise, might possibly take place without checking the increase of population. The tax would in that case fall on the laborers themselves, and would reduce them prematurely to that lower state to which, on the same supposition with regard to their habits, they would in any case have been reduced ultimately, by the inevitable diminution in the rate of increase of capital, through the occupation of all the fertile land.
Some will object that, even in this case, a tax on wages can not be detrimental to the laborers, since the money raised by it, being expended in the country, comes back to the laborers again through the demand for labor. Without, however, reverting to general principles, we may rely on an obvious _reductio ad absurdum_. If to take money from the laborers and spend it in commodities is giving it back to the laborers, then, to take money from other classes, and spend it in the same manner, must be giving it to the laborers; consequently, the more a government takes in taxes, the greater will be the demand for labor, and the more opulent the condition of the laborers—a proposition the absurdity of which no one can fail to see.
In the condition of most communities, wages are regulated by the habitual standard of living to which the laborers adhere, and on less than which they will not multiply. Where there exists such a standard, a tax on wages will indeed for a time be borne by the laborers themselves; but, unless this temporary depression has the effect of lowering the standard itself, the increase of population will receive a check, which will raise wages, and restore the laborers to their previous condition. On whom, in this case, will the tax fall? A rise of wages occasioned by a tax must, like any other increase of the cost of labor, be defrayed from profits. To attempt to tax day-laborers, in an old country, is merely to impose an extra tax upon all employers of common labor; unless the tax has the much worse effect of permanently lowering the standard of comfortable subsistence in the minds of the poorest class.
We find in the preceding considerations an additional argument for the opinion, already expressed, that direct taxation should stop short of the class of incomes which do not exceed what is necessary for healthful existence. These very small incomes are mostly derived from manual labor; and, as we now see, any tax imposed on these, either permanently degrades the habits of the laboring-class, or falls on profits, and burdens capitalists with an indirect tax, in addition to their share of the direct taxes; which is doubly objectionable, both as a violation of the fundamental rule of equality, and for the reasons which, as already shown, render a peculiar tax on profits detrimental to the public wealth, and consequently to the means which society possesses of paying any taxes whatever.
§ 5. —on Income.
We now pass, from taxes on the separate kinds of income, to a tax attempted to be assessed fairly upon all kinds; in other words, an Income-Tax. The discussion of the conditions necessary for making this tax consistent with justice has been anticipated in the last chapter. We shall suppose, therefore, that these conditions are complied with. They are, first, that incomes below a certain amount should be altogether untaxed.
This minimum should not be higher than the amount which suffices for the necessaries of the existing population. The second condition is, that incomes above the limit should be taxed only in proportion to the surplus by which they exceed the limit. Thirdly, that all sums saved from income and invested should be exempt from the tax; or, if this be found impracticable, that life-incomes and incomes from business and professions should be less heavily taxed than inheritable incomes.
An income-tax, fairly assessed on these principles, would be, in point of justice, the least exceptionable of all taxes. The objection to it, in the present state of public morality, is the impossibility of ascertaining the real incomes of the contributors. Notwithstanding, too, what is called the inquisitorial nature of the tax, no amount of inquisitorial power which would be tolerated by a people the most disposed to submit to it could enable the revenue officers to assess the tax from actual knowledge of the circumstances of contributors. Rents, salaries, annuities, and all fixed incomes, can be exactly ascertained. But the variable gains of professions, and still more the profits of business, which the person interested can not always himself exactly ascertain, can still less be estimated with any approach to fairness by a tax-collector. The main reliance must be placed, and always has been placed, on the returns made by the person himself. The tax, therefore, on whatever principles of equality it may be imposed, is in practice unequal in one of the worst ways, falling heaviest on the most conscientious.
It is to be feared, therefore, that the fairness which belongs to the principle of an income-tax can not be made to attach to it in practice.
This consideration would lead us to concur in the opinion which, until of late, has usually prevailed—that direct taxes on income should be reserved as an extraordinary resource for great national emergencies, in which the necessity of a large additional revenue overrules all objections.
The difficulties of a fair income-tax have elicited a proposition for a direct tax of so much per cent, not on income but on expenditure; the aggregate amount of each person’s expenditure being ascertained as the amount of income now is, from statements furnished by the contributors themselves. The only security would still be the veracity of individuals, and there is no reason for supposing that their statements would be more trustworthy on the subject of their expenses than on that of their revenues. The taxes on expenditure at present in force, either in this or in other countries, fall only on particular kinds of expenditure, and differ no otherwise from taxes on commodities than in being paid directly by the person who consumes or uses the article, instead of being advanced by the producer or seller, and reimbursed in the price. The taxes on horses and carriages, on dogs, on servants, are of this nature. They evidently fall on the persons from whom they are levied—those who use the commodity taxed. A tax of a similar description, and more important, is a house-tax, which must be considered at somewhat greater length.
§ 6. A House-Tax.
The rent of a house consists of two parts, the ground-rent, and what Adam Smith calls the building-rent. The first is determined by the ordinary principles of rent. It is the remuneration given for the use of the portion of land occupied by the house and its appurtenances; and varies from a mere equivalent for the rent which the ground would afford in agriculture to the monopoly rents paid for advantageous situations in populous thoroughfares. The rent of the house itself, as distinguished from the ground, is the equivalent given for the labor and capital expended on the building. The fact of its being received in quarterly or half-yearly payments makes no difference in the principles by which it is regulated. It comprises the ordinary profit on the builder’s capital, and an annuity, sufficient at the current rate of interest, after paying for all repairs chargeable on the proprietor, to replace the original capital by the time the house is worn out, or by the expiration of the usual term A tax of so much per cent on the gross rent falls on both those portions alike. The more highly a house is rented, the more it pays to the tax, whether the quality of the situation or that of the house itself is the cause. The incidence, however, of these two portions of the tax must be considered separately.
As much of it as is a tax on building-rent must ultimately fall on the consumer, in other words, the occupier. For, as the profits of building are already not above the ordinary rate, they would, if the tax fell on the owner and not on the occupier, become lower than the profits of untaxed employments, and houses would not be built. It is probable, however, that for some time after the tax was first imposed, a great part of it would fall, not on the renter, but on the owner of the house. A large proportion of the consumers either could not afford, or would not choose, to pay their former rent with the tax in addition, but would content themselves with a lower scale of accommodation. Houses, therefore, would be for a time in excess of the demand. The consequence of such excess, in the case of most other articles, would be an almost immediate diminution of the supply; but so durable a commodity as houses does not rapidly diminish in amount. New buildings, indeed, of the class for which the demand had decreased, would cease to be erected, except for special reasons; but in the mean time the temporary superfluity would lower rents, and the consumers would obtain, perhaps, nearly the same accommodation as formerly, for the same aggregate payment, rent and tax together. By degrees, however, as the existing houses wore out, or as increase of population demanded a greater supply, rents would again rise; until it became profitable to recommence building, which would not be until the tax was wholly transferred to the occupier. In the end, therefore, the occupier bears that portion of a tax on rent which falls on the payment made for the house itself, exclusively of the ground it stands on.
The case is partly different with the portion which is a tax on ground-rent. As taxes on rent, properly so called, fall on the landlord, a tax on ground-rent, one would suppose, must fall on the ground-landlord, at least after the expiration of the building-lease. It will not, however, fall wholly on the landlord, unless with the tax on ground-rent there is combined an equivalent tax on agricultural rent. The lowest rent of land let for building is very little above the rent which the same ground would yield in agriculture: since it is reasonable to suppose that land, unless in case of exceptional circumstances, is let or sold for building as soon as it is decidedly worth more for that purpose than for cultivation. If, therefore, a tax were laid on ground-rents without being also laid on agricultural rents, it would, unless of trifling amount, reduce the return from the lowest ground-rents below the ordinary return from land, and would check further building quite as effectually as if it were a tax on building-rents, until either the increased demand of a growing population, or a diminution of supply by the ordinary causes of destruction, had raised the rent by a full equivalent for the tax. But whatever raises the lowest ground-rents raises all others, since each exceeds the lowest by the market value of its peculiar advantages. If, therefore, the tax on ground-rents were a fixed sum per square foot, the more valuable situations paying no more than those least in request, this fixed payment would ultimately fall on the occupier. Suppose the lowest ground-rent to be $50 per acre, and the highest $5,000, a tax of $5 per acre on ground-rents would ultimately raise the former to $55, and the latter consequently to $5,005, since the difference of value between the two situations would be exactly what it was before: the annual $5, therefore, would be paid by the occupier. But a tax on ground-rent is supposed to be a portion of a house-tax which is not a fixed payment, but a percentage on the rent. The cheapest site, therefore, being supposed as before to pay $5, the dearest would pay $500, of which only the $5 could be thrown upon the occupier, since the rent would still be only raised to $5,005.
Consequently, $495 of the $500 levied from the expensive site would fall on the ground-landlord.(341) A house-tax thus requires to be considered in a double aspect, as a tax on all occupiers of houses, and a tax on ground-rents.
In the vast majority of houses the ground-rent forms but a small proportion of the annual payment made for the house, and nearly all the tax falls on the occupier. It is only in exceptional cases, like that of the favorite situations in large towns, that the predominant element in the rent of the house is the ground-rent; and, among the very few kinds of income which are fit subjects for peculiar taxation, these ground-rents hold the principal place, being the most gigantic example extant of enormous accessions of riches acquired rapidly, and in many cases unexpectedly, by a few families, from the mere accident of their possessing certain tracts of land without their having themselves aided in the acquisition by the smallest exertion, outlay, or risk. So far, therefore, as a house-tax falls on the ground-landlord, it is liable to no valid objection.
In so far as it falls on the occupier, if justly proportioned to the value of the house, it is one of the fairest and most unobjectionable of all taxes. No part of a person’s expenditure is a better criterion of his means, or bears, on the whole, more nearly the same proportion to them.
The equality of this tax can only be seriously questioned on two grounds.
The first is, that a miser may escape it. This objection applies to all taxes on expenditure; nothing but a direct tax on income can reach a miser. The second objection is, that a person may require a larger and more expensive house, not from having greater means, but from having a larger family. Of this, however, he is not entitled to complain, since having a large family is at a person’s own choice; and, so far as concerns the public interest, is a thing rather to be discouraged than promoted.(342) A valuation should be made of the house, not at what it would sell for, but at what would be the cost of rebuilding it, and this valuation might be periodically corrected by an allowance for what it had lost in value by time, or gained by repairs and improvements. The amount of the amended valuation would form a principal sum, the interest of which, at the current price of the public funds, would form the annual value at which the building should be assessed to the tax.
As incomes below a certain amount ought to be exempt from income-tax, so ought houses below a certain value from house-tax, on the universal principle of sparing from all taxation the absolute necessaries of healthful existence. In order that the occupiers of lodgings, as well as of houses, might benefit, as in justice they ought, by this exemption, it might be optional with the owners to have every portion of a house which is occupied by a separate tenant valued and assessed separately.
Chapter III. Of Taxes On Commodities, Or Indirect Taxes.
§ 1. A Tax on all commodities would fall on Profits.
By taxes on commodities are commonly meant those which are levied either on the producers, or on the carriers or dealers who intervene between them and the final purchasers for consumption; the phrase being, by custom, confined to indirect taxes—those which are advanced by one person, to be, as is expected and intended, reimbursed by another.
Taxes on commodities are either on production within the country, or on importation into it, or on conveyance or sale within it, and are classed respectively as excise, customs, or tolls and transit duties. To whichever class they belong, and at whatever stage in the progress of the community they may be imposed, they are equivalent to an increase of the cost of production; using that term in its most enlarged sense, which includes the cost of transport and distribution, or, in common phrase, of bringing the commodity to market.
When the cost of production is increased artificially by a tax, the effect is the same as when it is increased by natural causes. If only one or a few commodities are affected, their value and price rise, so as to compensate the producer or dealer for the peculiar burden; but if there were a tax on all commodities, exactly proportioned to their value, no such compensation would be obtained; there would neither be a general rise of values, which is an absurdity, nor of prices, which depend on causes entirely different. There would, however, as Mr. McCulloch has pointed out, be a disturbance of values, some falling, others rising, owing to a circumstance, the effect of which on values and prices we formerly discussed—the different durability of the capital employed in different occupations. The gross produce of industry consists of two parts; one portion serving to replace the capital consumed, while the other portion is profit. Now, equal capital in two branches of production must have equal expectations of profit; but if a greater portion of the one than of the other is fixed capital, or if that fixed capital is more durable, there will be a less consumption of capital in the year, and less will be required to replace it, so that the profit, if absolutely the same, will form a greater proportion of the annual returns. To derive from a capital of $1,000 a profit of $100, the one producer may have to sell produce to the value of $1,100, the other only to the value of $500. If on these two branches of industry a tax be imposed of five per cent _ad valorem_, the last will be charged only with $25, the first with $55; leaving to the one $75 profit, to the other only $45. To equalize, therefore, their expectation of profit, the one commodity must rise in price, or the other must fall, or both.(343) Commodities made chiefly by immediate labor must rise in value, as compared with those which are chiefly made by machinery.
It is unnecessary to prosecute this branch of the inquiry any further.
§ 2. Taxes on particular commodities fall on the consumer.
A tax on any one commodity, whether laid on its production, its importation, its carriage from place to place, or its sale, and whether the tax be a fixed sum of money for a given quantity of the commodity, or an _ad valorem_ duty, will, as a general rule, raise the value and price of the commodity by at least the amount of the tax. There are few cases in which it does not raise them by more than that amount. In the first place, there are few taxes on production on account of which it is not found or deemed necessary to impose restrictive regulations on the manufacturers or dealers, in order to check evasions of the tax. These regulations are always sources of trouble and annoyance, and generally of expense, for all of which, being peculiar disadvantages, the producers or dealers must have compensation in the price of their commodity. These restrictions also frequently interfere with the processes of manufacture, requiring the producer to carry on his operations in the way most convenient to the revenue, though not the cheapest or most efficient for purposes of production. Any regulations whatever, enforced by law, make it difficult for the producer to adopt new and improved processes. Further, the necessity of advancing the tax obliges producers and dealers to carry on their business with larger capitals than would otherwise be necessary, on the whole of which they must receive the ordinary rate of profit, though a part only is employed in defraying the real expenses of production or importation. The price of the article must be such as to afford a profit on more than its natural value, instead of a profit on only its natural value. Neither ought it to be forgotten that whatever renders a larger capital necessary in any trade or business limits the competition in that business, and, by giving something like a monopoly to a few dealers, may enable them either to keep up the price beyond what would afford the ordinary rate of profit, or to obtain the ordinary rate of profit with a less degree of exertion for improving and cheapening their commodity. In these several modes, taxes on commodities often cost to the consumer, through the increased price of the article, much more than they bring into the treasury of the state. There is still another consideration: the higher price necessitated by the tax almost always checks the demand for the commodity; and, since there are many improvements in production which, to make them practicable, require a certain extent of demand, such improvements are obstructed, and many of them prevented altogether. It is a well-known fact that the branches of production in which fewest improvements are made are those with which the revenue-officer interferes; and that nothing, in general, gives a greater impulse to improvements in the production of a commodity than taking off a tax which narrowed the market for it.
§ 3. Peculiar effects of taxes on Necessaries.
Such are the effects of taxes on commodities, considered generally; but, as there are some commodities (those composing the necessaries of the laborer) of which the values have an influence on the distribution of wealth among different classes of the community, it is requisite to trace the effects of taxes on those particular articles somewhat further. If a tax be laid, say on corn, and the price rises in proportion to the tax, the rise of price may operate in two ways: First, it may lower the condition of the laboring-classes; temporarily, indeed, it can scarcely fail to do so. If it diminishes their consumption of the produce of the earth, or makes them resort to a food which the soil produces more abundantly, and therefore more cheaply, it to that extent contributes to throw back agriculture upon more fertile lands or less costly processes, and to lower the value and price of corn; which therefore ultimately settles at a price, increased not by the whole amount of the tax, but by only a part of its amount. Secondly, however, it may happen that the dearness of the taxed food does not lower the habitual standard of the laborer’s requirements, but that wages, on the contrary, through an action on population, rise, in shorter or longer periods, so as to compensate the laborers for their portion of the tax, the compensation being of course at the expense of profits. Taxes on necessaries must thus have one of two effects: either they lower the condition of the laboring-classes, or they exact from the owners of capital, in addition to the amount due to the state on their own necessaries, the amount due on those consumed by the laborers. In the last case, the tax on necessaries, like a tax on wages, is equivalent to a peculiar tax on profits; which is, like all other partial taxation, unjust, and is specially prejudicial to the increase of the national wealth.
It remains to speak of the effect on rent. Assuming (what is usually the fact) that the consumption of food is not diminished, the same cultivation as before will be necessary to supply the wants of the community; the margin of cultivation, to use Dr. Chalmers’s expression, remains where it was; and the same land or capital, which, as the least productive, already regulated the value and price of the whole produce, will continue to regulate them. The effect which a tax on agricultural produce will have on rent depends on its affecting or not affecting the difference between the return to this least productive land or capital and the returns to other lands and capitals. Now, this depends on the manner in which the tax is imposed. If it is an _ad valorem_ tax, or, what is the same thing, a fixed proportion of the produce, such as tithe for example, it evidently lowers corn-rents. For it takes more corn from the better lands than from the worse, and exactly in the degree in which they are better, land of twice the productiveness paying twice as much to the tithe. Whatever takes more from the greater of two quantities than from the less, diminishes the difference between them. The imposition of a tithe on corn would take a tithe also from corn-rent: for, if we reduce a series of numbers by a tenth each, the differences between them are reduced one tenth.
For example, let there be five qualities of land, which severally yield, on the same extent of ground and with the same expenditure, 100, 90, 80, 70, and 60 bushels of wheat, the last of these being the lowest quality which the demand for food renders it necessary to cultivate. The rent of these lands will be as follows: The land producing 100 bushels will yield a rent of 100-60, or 40 bushels.
That producing 90 bushels, a rent of 90-60, or 30 bushels.
That producing 80 bushels, a rent of 80-60, or 20 bushels.
That producing 70 bushels, a rent of 70-60, or 10 bushels.
That producing 60 bushels, will yield no rent.
Now let a tithe be imposed, which takes from these five pieces of land 10, 9, 8, 7, and 6 bushels respectively, the fifth quality still being the one which regulates the price, but returning to the farmer, after payment of tithe, no more than 54 bushels: The land producing 100 bushels reduced to 90 will yield a rent of 90-54, or 36 bushels.
That producing 90 bushels reduced to 81, a rent of 81-54, or 27 bushels.
That producing 80 bushels reduced to 72, a rent of 72-54, or 18 bushels.
That producing 70 bushels reduced to 63, a rent of 63-54, or 9 bushels.
and that producing 60 bushels, reduced to 54, will yield, as before, no rent. So that the rent of the first quality of land has lost four bushels; of the second, three; of the third, two; and of the fourth, one: that is, each has lost exactly one tenth. A tax, therefore, of a fixed proportion of the produce lowers, in the same proportion, corn-rent.
But it is only corn-rent that is lowered, and not rent estimated in money, or in any other commodity. For, in the same proportion as corn-rent is reduced in quantity, the corn composing it is raised in value. Under the tithe, 54 bushels will be worth in the market what 60 were before; and nine tenths will in all cases sell for as much as the whole ten tenths previously sold for. The landlords will therefore be compensated in value and price for what they lose in quantity, and will suffer only so far as they consume their rent in kind, or, after receiving it in money, expend it in agricultural produce; that is, they only suffer as consumers of agricultural produce, and in common with all the other consumers.
Considered as landlords, they have the same income as before; the tithe, therefore, falls on the consumer, and not on the landlord.
The same effect would be produced on rent if the tax, instead of being a fixed proportion of the produce, were a fixed sum per quarter or per bushel. A tax which takes a shilling for every bushel takes more shillings from one field than from another, just in proportion as it produces more bushels; and operates exactly like tithe, except that tithe is not only the same proportion on all lands, but is also the same proportion at all times, while a fixed sum of money per bushel will amount to a greater or less proportion, according as corn is cheap or dear.
There are other modes of taxing agriculture, which would affect rent differently. A tax proportioned to the rent would fall wholly on the rent, and would not at all raise the price of corn, which is regulated by the portion of the produce that pays no rent. A fixed tax of so much per cultivated acre, without distinction of value, would have effects directly the reverse. Taking no more from the best qualities of land than from the worst, it would leave the differences the same as before, and consequently the same corn-rents, and the landlords would profit to the full extent of the rise of price. To put the thing in another manner: the price must rise sufficiently to enable the worst land to pay the tax, thus enabling all lands which produce more than the worst to pay not only the tax, but also an increased rent to the landlords. These, however, are not so much taxes on the produce of land as taxes on the land itself. Taxes on the produce, properly so called, whether fixed or _ad valorem_, do not affect rent, but fall on the consumer, profits, however, generally bearing either the whole or the greatest part of the portion which is levied on the consumption of the laboring-classes.
§ 4. —how modified by the tendency of profits to a minimum.
The preceding is, I apprehend, a correct statement of the manner in which taxes on agricultural produce operate when first laid on. When, however, they are of old standing, their effect may be different. Now, the effect of accumulation, when attended by its usual accompaniment, an increase of population, is to increase the value and price of food, to raise rent, and to lower profits; that is, to do precisely what is done by a tax on agricultural produce, except that this does not raise rent. The tax, therefore, merely anticipates the rise of price and fall of profits which would have taken place ultimately through the mere progress of accumulation, while it at the same time prevents, or at least retards, that progress. If the rate of profit was such that the effect of the tithe reduces it to the practical minimum, after a lapse of time which would have admitted of a rise of one tenth from the natural progress of wealth, the consumer will be paying no more than he would have paid if the tithe had never existed; he will have ceased to pay any portion of it, and the person who will really pay it is the landlord, whom it deprives of the increase of rent which would by that time have accrued to him. At every successive point in this interval of time, less of the burden will rest on the consumer, and more of it on the landlord; and, in the ultimate result, the minimum of profits will be reached with a smaller capital and population and a lower rental than if the course of things had not been disturbed by the imposition of the tax. If, on the other hand, the tithe or other tax on agricultural produce does not reduce profits to the minimum, but to something above the minimum, accumulation will not be stopped, but only slackened; and, if population also increases, the twofold increase will continue to produce its effects—a rise of the price of corn and an increase of rent. These consequences, however, will not take place with the same rapidity as if the higher rate of profit had continued. At the end of twenty years the country will have a smaller population and capital than, but for the tax, it would by that time have had; the landlords will have a smaller rent, and the price of corn, having increased less rapidly than it would otherwise have done, will not be so much as a tenth higher than what, if there had been no tax, it would by that time have become. A part of the tax, therefore, will already have ceased to fall on the consumer and devolved upon the landlord, and the proportion will become greater and greater by lapse of time.
But though tithes and other taxes on agricultural produce, when of long standing, either do not raise the price of food and lower profits at all, or, if at all, not in proportion to the tax, yet the abrogation of such taxes, when they exist, does not the less diminish price, and, in general, raise the rate of profit. The abolition of a tithe takes one tenth from the cost of production, and consequently from the price, of all agricultural produce; and, unless it permanently raises the laborer’s requirements, it lowers the cost of labor and raises profits. Rent, estimated in money or in commodities, generally remains as before; estimated in agricultural produce, it is raised. The country adds as much, by the repeal of a tithe, to the margin which intervenes between it and the stationary state as was cut off from that margin by the tithe when first imposed. Accumulation is greatly accelerated, and, if population also increases, the price of corn immediately begins to recover itself and rent to rise, thus gradually transferring the benefit of the remission from the consumer to the landlord.
§ 5. Effects of discriminating Duties.
We have hitherto inquired into the effects of taxes on commodities, on the assumption that they are levied impartially on every mode in which the commodity can be produced or brought to market. Another class of considerations is opened, if we suppose that this impartiality is not maintained, and that the tax is imposed, not on the commodity, but on some particular mode of obtaining it.
Suppose that a commodity is capable of being made by two different processes—as a manufactured commodity may be produced either by hand or by steam-power—sugar may be made either from the sugar-cane or from beet-root, cattle fattened either on hay and green crops or on oil-cake and the refuse of breweries. It is the interest of the community that, of the two methods, producers should adopt that which produces the best article at the lowest price. This being also the interest of the producers, unless protected against competition, and shielded from the penalties of indolence, the process most advantageous to the community is that which, if not interfered with by Government, they ultimately find it to their advantage to adopt. Suppose, however, that a tax is laid on one of the processes, and no tax at all, or one of smaller amount, on the other. If the taxed process is the one which the producers would not have adopted, the measure is simply nugatory. But if the tax falls, as it is of course intended to do, upon the one which they would have adopted, it creates an artificial motive for preferring the untaxed process, though the inferior of the two. If, therefore, it has any effect at all, it