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as to be the ground of essentially different regulations. All the received canons and categories appear subordinate to the golden rule, that the detriment attending an assigned amount of taxation should be a minimum, and the grand distinction between modes of detriment, diminution of the total production and aggravation of unequal distribution.

II. Imposts on Occupiers.—The effects of a tax or rate vary with a variety of cases, of which the definition in each context is commended to, without being intruded on, the attention of the critical reader. One essential difference is between new and old houses, those built and occupied before or after the imposition of the tax or rate. Let us begin with the first head, and under it first consider dwelling-houses. As to tenure, let us take as typical the English leasehold system; observing that, for our purpose, it does not make much matter whether the lease is for 99, or for 999 years, or, as in the case of “ feu duties," for ever.1 Nor does it matter whether, in addition to the three principal parties—the ground landlord, the building owner, and the occupier—there is intercalated a fourth or fifth party, such as the holder of an “improved leasehold ground rent,” or other sublessee.

An ad valorem tax on the gross rent which the occupier pays will obey the general law which governs taxes of consumable commodities. The economist has not to construct a special law of taxation for the taxing of houses, any more than the physicist has to construct a special law of gravitation for the tumbling of houses. It is deducible by received general reasoning that the three parties in the proposed typical case will be affected as follows. The occupier will suffer not only by paying more for the house accommodation which he continues to use, but also by forgoing part of what he would have used but for the impost. “Residences in different places constituting rival commodities ... a uniform tax may so disturb the balance of complex demand as to cause a certain rush of inhabitants from one town to another." 3 A similar disturbance of the marginal utility and the quantity demanded of different styles of house accommodation would result* (even from the uniform

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1 The varieties of tenure prevalent in this country are clearly explained by Mr. Sargant in the first chapter of his Urban Rating.

2 Merit., p. 127, par. 1. Compare Mr. Cannan in the passage referred to above, at p. 172.

3 Mem., p. 130. It is possible that the minimum disturbance of this sort would result from a not uniform.

* It is conceivable that the demand for houses of a certain kind might be increased

national house tax here contemplated, and, a fortiori, from the actual inhabited house duty). The capitalist building owner will not (in the long run) be damnified at all, or only inasmuch as, if house-building is a sensible portion of the total industry, general profits would be depressed. The ground landlord will be damnified by the relaxed demand for sites. The reduction of ground rents will be greater, ceteris paribus, the greater the elasticity of the occupier's demand for house accommodation.” These propositions are sufficiently evidenced by the general reasoning of the older economists, supplemented by the modern doctrine of margins. If specific experience is demanded, it may be found in the evidence of Sir Sidney Waterlow before the Local Taxation Commission of 1870. The effects which a tax exerts upon the margins of production and consumption are clearly indicated in the following passages :

“ Supposing there were no local rates at all, the profits would have been so large that we should have been tempted immediately to increase supply.' (Q. 3411). . .

“ You cannot increase the quantity of land, but you may increase the quantity of building on a given piece of land, and if you put seven storey houses instead of two, of course you get an increased quantity of the article, and then the law of supply and demand comes in and affects the rent.” (Q. 3440).

“ There is . . . a limit in height both as affecting the cost of construction

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by the tax. Cp. Marshall, Principles of Economics, Book III., c. 3, $ 6, note :“It is even conceivable, though not probable, that a simultaneous and proportionate fall in the price of all teas may diminish the demand for some particular kind of it.” Adam Smith supposes that a tax “ payable by the inhabitant” would diminish the competition for houses “ of all other rents except the lower rent for which it would for some time increase the competition." (Wealth of Nations, Book V., ch. ii.) His reasoning is perfectly correct on a probable supposition that the demand for housing is tolerably elastic for the higher styles and rigid for the indispensable minimum of accommodation-conditions which it is not easy to state exactly without the use of symbols, such as those employed in the treatment of correlated demand by the present writer in the ECONOMIC JOURNAL, vol. vii., p. 63, note.

Cp. ECONOMIC JOURNAL, vol. vii, p. 68, where the observation is traced to Prof. Pantaleoni's original Traslazione dei Tributi.

2 The evidence of this proposition is of a sort which frequently occurs in mathematical economics. The proposition is true, not universally, but probably, its quality depending on the form of a function which is unknown, but may be presumed in the long run of cases to be favourable to the proposition. Thus, in the case before us, it is conceivable, but improbable, that the less expensive buildings, which would be resorted to in consequence of the tax, would be of a construction which required a larger area than the many-storeyed mansions which it was profit. able before the tax to erect. The proof of the theorem that improvements in agriculture tend to reduction of rent appears to be of the kind here contemplated (CP. as to this theorem, Marshall, Principles of Economics, Book VI., ch. ix., final note). Other instances occur in the mathematical theory of taxation in a régime of monopoly (Cp. Economic JOURNAL, IX., pp. 313, 312, par. 1, and Giornale degli Economisti, 1897).

and the question of convenience to the tenants.” “ It is only in districts where there is a great demand for houses that you are able to build the fats one above the other, and the landlord is able at the same time to get a high ground rent.” (Q. 3516–7).

The solution of the problem here offered is confirmed by its agreement with the conclusions of the experts, as evidenced by the following extracts read in connection with their contexts.

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Farrer, p. 67:- Abolish the house duty and the Duke of Bedford's income would probably be increased."

p. 68:—“The error of supposing that rates are wholly paid by the occupier of houses in town, and are not shifted at all on to the reversioner.”

Courtney, p. 86:-“ Where there is no special advantage of site or position .. the abolition of a house duty would be a relief to the occupier only, and the imposition of a house duty would be a burden on the occupier. Even if the duty had the effect of compelling the occupier to live in a house less com. modious than he would otherwise obtain, the burden would still rest upon him, not by making him pay more, but giving him less for his money."

Sir Robert Giffen, p. 96 :—“The inhabited house duty is a consumption tax."

Sidgwick, p. 103 :-“When the tax has become old, it may be assumed that no part of it is borne by builders as such. ... The rent paid for a house must be sufficient, speaking broadly, to allow the builder of new houses as muchprofit as he would have had if the tax had not been imposed ... the tax must be assumed permanently to reduce in some degree the demand for houses. . .

p. 105 :—“The prevalent belief, that the extra burden of the high rates of London and other towns really falls in the main on the occupiers of houses as such, would seem not to be well-founded” ...

Marshall, p. 117:- The inhabited house duty being onerous tends to check building." Bastable, p. 141:-"

:-“ So far as demand for building is reduced by it (the inhabited house duty), the ground landlord is affected.”

· Gonner, p. 153:-" It is levied on a consumable commodity, namely, a house, and thus will fall, in the first instance, on the immediate consumer. The consumer cannot shift it on to the owner, as in that case the profits of a particular trade would be specially taxed.”

Cannan, p. 168 :-“ Let us suppose that there has hitherto been no house tax, and that a universal tax of 58. in the £ for unproductive purposes is placed on all dwelling-houses, and levied on the occupiers. Let us suppose also that the occupiers are on quarterly tenancies, all of which expire between the passing of the Act and its coming into force. The immediate effect must be a fall in house rent. All occupiers must restrict either their expenditure or their savings in some direction, and enough of them will try to reduce their expenditure in rent-plus house tax to make a great diminution in the demand for house room. As the number of houses has not yet been altered by the tax, the supply remains the same, and consequently the price must be reduced. But this reduction of rent, of course, reduces the capital value of houses ; the capital value being reduced, some professional builders retire from the business and others become bankrupt, and the supply of houses is consequently reduced. Building stops, or proceeds at a slower rate, until building profits are restored to the ordinary level by a rise of house rent and the capital value of houses.

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The occupiers then have to pay more for the same accommodation, or to be content with worse accommodation for the same money.

“ A tax on a particular form of property does damage to the owners of property in general, as well as the consumers of the commodity connected with the particular class of property”... [a fact] “ of trifling importance in the case of a tax on a small class of property."

Sargant, p. 212:-“ Among tendencies of the inhabited house duty which tend to throw by anticipations small part of the constant rates . on to the owners of the sites, are (1) the tendency of the tax to make occupiers inhabit smaller houses or tenements.” 1

Mackay, p. 226 :—“There is only one market for capital and enterprise, and if the business of house-building is to go on, it must give the normal rate of profit to those engaged in it. The producer may evade the loss involved in the increased cost of production ... by limiting supply till increased demand

2 raises the price.”

The experts who are not quoted as gathering with the doctrine here propounded are not to be understood as scattering against it. There seems to be only one irreconcilable dissentient, Mr. Gomme,” and even he is not very decided. Why then is a larger show of concord not exhibited ? The answer to this question may be interesting to other students of synoptic economics.

In the first place writers of answers to the paper set by the Royal Commission very properly remembered that they were not undergoing an ordinary examination; and did not seek to cover the ground evenly, after the manner of a candidate who knows that his examiner is prohibited by an official rule from assigning more than a certain maximum to each answer. Mr. Cannan, for instance, whose answer as to the effect of a house tax on the occupier and building owner is in striking accord with ours, does not go on with us to mention the effect of ground rent on the decline of investment in building, having occasion to invoke that obvious corollary in a subsequent passage in connection with an original theory of his own. Again, Mr. Mackay, resuming the whole theory of incidence from an independent standpoint, gives a general support to our propositions which it is not possible to exhibit by a quotation within our limits.

Other writers have glanced away from our inquiry in an opposite direction, by keeping quite close to the question set by the Commissioners. Their answer relates to the concrete incidents of the British Inhabited House Duty, not to the general question here proposed. It is thus that we may interpret Professor Bastable, when he writes :

* Broadly speaking, this tax falls finally, as well as immediately, on the occupier. So far as demand for building is reduced by it, the ground landlord is affected, but this influence must be trifling.” (Mem., p. 141.)

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1 Head (2) is referred to on p. 181 above.

2 Vem., p. 241, last par.

The inhabited house tax being small, if the demand for house accommodation is of an ordinary kind, not approaching

, perfect elasticity, which there is no reason to believe, the influence of the tax on the demand for ground must be“ trifling." The immediate context about the incidence of rates- said to be more complex owing (inter alia) to “their greater amount ”bears out this interpretation. A similar explanation is probably to be given of certain other round statements as to the incidence of the tax on the occupier, e.g.,

"Speaking generally, I think the inhabited house duty is borne by the occupier . . the proposition remains generally true, as far as houses occupied for domestic purposes are concerned, that inhabited house duty is paid by the occupier." (Courtney, p. 86.)

It would seem from the context that Mr. Courtney's dictum rests upon a particular matter of fact concerning which the general theory here propounded makes no assumption, namely that the case "where there is no special advantage of site or position "(loc. cit.) may be regarded as the general one, rather than the case “where site or position forms an important part in the value of the house." The assumption seems to have been made by some of the older economists, and was probably truer in their time than now. However this may be, to assign a particular value to one of the co-efficients in a general formula is not to invalidate the truth of that formula.

This last remark is to be borne in mind in considering Mr. Blunden's attitude of dissent. He finds that

" the real incidence of this tax [the inhabited house duty] is normally and generally upon the oocupier,” (Mem., p. 189.) by assigning a particular value to a co-efficient which we have left undetermined, the elasticity of demand for house accommodation. He in effect puts zero for the value of this coefficient.

“ The surrender of some portion of their customary house accommodation is for many reasons repugnant to the feelings of the great majority of householders, and would only be resorted to under the strongest pressure, and in a small proportion of cases (Mem., p. 190).

The question here raised is important in its bearing not only on an imperial house duty, but also on local house rates, so far as they are both onerous and uniform, or not tending to divert. demand from one locality to another. It appears to the present writer impossible to reconcile Mr. Blunden's statement with

1 Cp. J. S. Mill, Pol. Econ., Book V., c. 3, § 6, par. 5.

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