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general presumptions as expressed by Adam Smith in a wellknown passage, or with specific statements made by competent witnesses; for instance, some of those implied in passages above cited from Sir Sidney Waterlow's evidence above quoted, or the following:

“[If we had raised rent] "those who had three rooms would have gone into two rooms'. . . ' they are obliged (in such a case] to take ... a cheaper tenement which is inferior in quality or accommodation.'” [Evidence of Sir Sidney Waterlow, loc.cit. Q. 3433 and Q. 3437.]

" When the distress came on, mechanics, formerly in receipt of good wages, and living in two or three rooms, packed themselves into one.” [Evidence of Dudley Baxter before Select Committee on Local Taxation, 1870, No. 353, Q. 5799.]

Nor is Professor Seligman, to whom Mr. Blunden appeals, convincing when he maintains :

“House accommodation is in part an absolute necessity, in part, an expensive luxury. ..."

“Many people prefer to maintain their supposed station in life at any cost. In such cases, a law on house accommodation tends, as in the case of all taxes on luxuries, to make them forgo other things which they deem less desirable." 3

Upon general presumptions, should we not rather expect that intermediate between the class to whom the amount of house accommodation which they now enjoy is an absolute necessity and the class to whom it is an indispensable luxury, there would be a large class to whom house accommodation would be an article of the kind which has been called a mass-luxury, very apt to be consumed in greater quantities as the price decreases ? !

1 Wealth of Nations, Book V., c. 2. “He will therefore content himself with a worse house."

“ The final payment of this tax would fall partly upou the inhabitant of the house, who, in order to pay his share, would be obliged to give up a part of his revenue.” Cp. above, p. 184, note, and Economic JOURNAL, Vol. VII.,

p. 52.

2 It should be mentioned that Mr. Blunden appeals to specific personal experience on the other side. In a letter which he allows the present writer to refer to, Mr. Blunden says: “It is due to my daily observation of the facts (and not to any preconceived theory) that I hold the opinion that there is in actual life a much greater rigidity in the demand than has very usually been assumed. ... I have for many years past, and in many localities, been engaged more or less in examining returns of rents paid, many of which are accompanied by statements of the income of the rent-payers. As a result of my experience, I have become convinced that the effects of high or rising rates in lowering the standard of house accommodation is ordinarily inappreciable.”

3 Seligman, Shifting and Incidence, 2nd ed., p. 153.

* Compare the examples of different degrees of elasticity in the demand for the same article by different classes of society, given by Professor Marshall, Principles of Economics, Book III., c. 4, SS 2, 3, 4, ed. 4, p. 178 et sq.

On the whole, no adequate reason seems to have been shown for dissenting from Professor Marshall's judgment:

" Where the condition of society is healthy, and there is no check to general prosperity, there seems to be an elastic demand for house-room on account of both the real conveniences and the social distinction which it affords.” 1

Mr. Price's position, so far as it is really different from that which is here taken, is to be explained by the last-mentioned circumstance, a different estimate of one of the quantities involved; but the difference is, for the most part, only apparent. Mr. Price says:

The primary incidence of the inhabited house duty falls on the occupier, and it is probable that to a very large degree the real incidence of the tax corresponds with its primary and apparent incidence.” 2 But there is nothing in the reason which he assigns in the immediate context with which the present writer cannot wholly a gree:

" Some, at least, of the reasons, which may be adduced in support of the theory that the burden of local rates is shifted from the occupier, do not apply to the case of the inhabited house duty. The occupier is unable to remove, or diminish, the burden, to any practical extent, by changing his abode.

He cannot move to another district where the duty is lower, for it is an imperial tax, levied on uniform principles throughout the country." 3

It should seem that the writer has bere in view the operation of the house duty on occupiers already accommodated with houses; a case which, in our division of the subject, does not yet come up for consideration, upon which, under another head, a complete agreement with Mr. Price will be expressed. It is true that Mr. Price adds:

“ His [the occupier's] house accommodation is, within narrow limits of increase or decrease of requirements, a fixed item in his standard of comfort.” 4

“ Expenditure on house accommodation is within limits elastic.” ś

Here there seems to be made a particular assumption as to the form of the " demand-curve" for house-accommodation : whereas, in the view of the present writer, there is legitimately only a general presumption that the demand is of an ordinary character, neither very elastic nor yet perfectly inelastic.

One more reason for not more largely producing the evidence of the experts is their occasional use of a certain terminology respecting the division of burden between occupier and landlord, which, however justified by authority, the present writer ventures to regard as infelicitous. The following is, perhaps, the most

| Principles of Economics, Book III, c. 4, p. 182. 2 Jem., p. 180.
3 Ibid.

+ Jem., p. 180. 5 Ibid., p. 181, par. 5. No. 38.–VOL. X.

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explicit, but by no means the only instance of the usage referred to:

“ So much of the house duty as was proportionate to this (the ground) rent and, so to speak, attached to it, would be ultimately borne by the person entitled to receive this rent.” (Courtney, p. 86.)

In this and similar passages there seems to be implied the doctrine which McCulloch has expressed with particular clearness:

“Were the supply of houses easily diminished and increased, a tax on their rent would fall wholly on occupiers and ground landlords, and be divided between them in the proportion which the profit of the capital required to build them bears to the ground on which they stand.” 1

It being universally admitted that, in McCulloch's words, " there are few chapters in Dr. Smith's great work more unsatisfactory than his chapter on rent,” it will not appear particularly impious to dispute a formula which involves Adam Smith's obsolete conception of rent forming part of price. The formula seems to have been repeated by the successors of Adam Smith, much as Adam Smith employed a few expressions savouring of the physiocratic errors which he had himself refuted. To remove the misconception it is sufficient to consider cases in the neigh. bourhood of the limit when the demand of the occupier is perfectly rigid. In such cases, whatever the proportion of the

1 Taxation and Funding, Part I., c. 1, § 2; criticised, along with J. S. Mill's parallel statement, by the present writer, ECONOMIC JOURNAL, vol. vii., p. 65. It is not quite clear whether McCulloch and the other eminent writers who have adopted this proposition mean the proportion between the profit and the ground, rent as they would have been if the impost had not existed, or as they are after the impost. The question is of the less importance, since for an indefinitely small tax which the appropriate mathematical analysis takes as the typical case the two statements might have been equally true, and since in fact they are equally false.

2 Dudley Baxter accepts as the received doctrine a very explicit statement of the theorem in his examination before the Select Committee on Local Taxation, 1870 (Q. 5811-5819). “That is theoretically the rationale of it," he holds, while pointing out that there are "very great variations in practice,” pertaining to what we should now call short periods. Those varieties will find a fitting place in the sequel ; here we are only concerned to deny that “theoretically the rationale of it " is as Baxter and his authorities suppose, e.g. in the test case which was put to him (ibid.):—" If the ground rent were very high, with a very small cottage built upon it, the cottage would bear very little of the rates, and the ground rent would bear a greater proportion ? ” Those who have the courage of abstract theory must reply that the size of the building provided it is not an irreducible minimum, provided that the margin of building left free-the amount of the surplusage forming ground rent, and the proportion between those two quantities, are not material circumstances with respect to the incidence of taxation. The elasticity of the demand for housing being kept constant-for instance, at or near zero-the amounts of the ground rent and the building rent (gross rent minus ground rent) might be interchanged without any variation of the loss resulting from the tax, both to the occupier and the ground landlord.

ground rent to the gross rent paid by the occupier, the detriment to the ground landlord is nothing or next to nothing, as may be verified by substituting barley for house accommodation, and employing the received theory of agricultural rent. Whoever heard, outside the pages of Adam Smith, of that part of a tax on barley which falls on rent? In general, the detriment to the ground landlord depends on the marginal conditions of production and consumption, and is independent of the total magnitudes of the ground rent and the gross rent (and the proportions between them), just as, to adopt an illustration of economic equilibrium which Professor Marshall has made familiar, the position at which two balls moving in a (vertical section of a) circular basin come to rest, is independent of the distance through which either body may have slid on its way to equilibrium.2

Probably many who have repeated the dictum of McCulloch have meant no more than the truism that, when the ground rent -or rather the excess thereof above the minimum fixed by agricultural rent-is (absolutely) small, then an impost on gross rent cannot reduce the ground rent by (an absolutely) great amount. The experts have acquiesced in the dictum of the classical economists, very much as they have acquiesced in the Classification emanating from high quarters which was submitted to their judgment. It is a good classification, the majority answer, with almost uniform civility, but not good for the purpose of determining the incidence of taxation. So the classical division of a tax on gross house rent into two portions, " as much of it as is a tax on building rent," and "the portion which is a tax on ground rent,” 3 is logically correct, and, like the kindred statement that “ rent does enter into the cost of production,” 4 may be appropriate for certain purposes, in particular to indicate the parties who are sufferers by the tax ; 5


1 Mem., p. 129, par. 3, p. 131, last par., and references given on both pages.
2 Cp. ECONOMIC JOURNAL, vol. vii., pp. 56 and 57.
3 Mill, Pol. Econ., Book V., c. 3, § 6.

Cp. Marshall, Principles of Economics, Book V., c. 8, 31. 5 One who disputes a received proposition may be reasonably required to point out how it came to be accepted. This condition is complied with by observing that the theorem in question would be exactly true upon two very natural suppositions: (a) That the demand for housing is perfectly inelastic, and (b) that a tax proportioned to the ground rent should be levied, directly or by way of deduction, on the ground landlord (or the building owner, who deals with the ground landlord), while a tax proportioned to the difference between gross rent and ground rent was levied on the occupier. Upon these suppositions the ground landlord would bear the whole tax on the ground rent, and he would not suffer any further loss resulting from a diminished demand for sites. Now the assumption (a), as we have seen

but it is not adapted to the present purpose to ascertain the extent to which ground rent tends in the long run to be reduced by a tax upon the gross rent of new houses. There is no objection to speaking of the "portion which is a tax on ground rent," if we are careful to remember that this portion and its proportion to the tax on gross rent has no relation whatever to the amount by which the ground rent tends to be reduced in consequence of the impost.

But the vulgar are apt to take words literally, and the expressions of economists have encouraged the popular exaggerations in the opposite directions of plutocratic and of socialistic error, on the side now of the land-agent now of the agitator. On the one hand the apportionment of the gross rent between occupier and ground landlord, predeterminately and irrespectively of the elasticity of demand and the amount of the tax, is of a piece with and suggests what may be called the fallacy of concrete instances, which is committed when some representative of the landed interest adduces a particular actual house, and argues that, if the rates had been greater by so much, the ground rent must have been less by just that much ; since the occupier would not have given more, nor the building owner have taken less than each has done. Whence (above, p. 188), is not without evidence ; and the confusion (6) is plausible and agreeable to popular parlance, more than other propositions which, from the point of view of economic theory, are on the same level of inaccuracy: for example, that it is all the same whether a bicycle tax is levied on the bicyclist who buys and uses the article, or on the landlord of a site which is required for the production of the article.

1 See the instance referred to, in the ECONOMIC JOURNAL, vol. vii., p. 67, note 1. To the same class may be referred the argument of Mr. Hunt in his evidence before the Local Taxation Commission of 1870, when he adduced the concrete instance of the "plot of land in Parliament Street now vacant, near the Whitehall Club," and proceeded in thought to build and let a house upon estimates based on the existing state of demand.

A similar case is discussed at Q. 13,550 et sqq. of the evidence given before the present Royal Commission on Local Taxation (C. 9150). The builder having spent £1000 on each of a set of houses, "will want £60 per. annum himself from each house." The gross rent paid by the occupier is £100, the rates are £20, and the ground rent is £20. It is argued that “if no rates had existed in the district the landlord would have got £40 a year for his land instead of £20;" ... "the tenant having calculated that he would pay £20 a year in the rates and only giving £80 to his landlord, it does not make any difference to the tenant whether he pays £80 to the landlord or £20 to the local authority, or whether he pays £100 to the landlord and none to the local authority.” According to our view, “if no Conerous] rates had existed in the district," the scale on which the capitalist would have found it profitable to build would not have been what it now is; the builder would have spent £1000+6x on each house, and would have wanted (on the same hypothesis as to the net return of the speculative builder, Q. 13,554) £60+ x per annum for himself; the occupier would have given £80+ y for the increased amount of accommodation; the ground landlord would have received £20+ y - x; where nothing is known of x and y except that they are positive, and that y is probably

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