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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.

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.
4 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.

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 [onerous) 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 - ; where nothing is known of x and y except that they are positive, and that y is probably

it is inferred that the ground landlord has already borne his fair share of burden. Now, when it is urged with respect to an actual house that a specified tax levied on the occupier would reduce the ground rent at its creation by so much, it is forgotten that the house would not be what it is if the specified tax had existed at the time of the building. For the amount of building on a site is not a fixed quantity, but is determined by the “ margin of building,” which varies with an ad valorem tax on the price or gross rent of the premises. There has been committed the fallacy which the inathematical economist discerns to be the treatment of a dependent like an independent variable ; and even the man in the street recognises when it assumes the gross form of attempting to eat your cake and have it. You cannot eat into the profits of the capitalist by an impost which reduces the marginal demand of the occupier, and at the same time have everything as it was before the impost, to be used as an argument against the taxation of ground rents. On the other hand, the advocates of taxing ground rents have also been bewildered by the inappropriate conception of demarcating a part of the tax levied on the occupier as “the portion which is a tax on ground-rent."3 The usual vices of socialist speculation, the confounding of short periods with long periods, of quasi rents with true rents, are aggravated by this misconception. Under its influence the proposition that a tax on ground value does not hurt the occupier is applied beyond its legitimate limits—not true in the long run, as will be argued in the sequel, of a rate to be levied from year to year, during the currency of the ground lease, in proportion to an ever-growing ground value, upon owners who will have contributed efforts and sacrifices to the production of a house.

The reasons which have been given in the last few paragraphs for not producing a larger array of confirmatory citations from the answers of the experts are applicable with slight change to the discussion of rates, which follows next.

F. Y. EDGEWORTH. . (To be continued.) greater than x (above, p. 184, note 2). There is not the slightest presumption that the loss to the ground landlord in consequence of the imposition of the rates is £20. The loss is y-x, unknown quantity minus unknown quantity. The same symbols may be usefully employed to expose the dogma of McCulloch, which is classed with that of these witnesses by a parity of misconception, not an identity of misstatement.

i It is true that the advocates have often in view the competition between different localities; but, as will be seen when we come to rates, the demand for house accommodation in that case is not so different from the simpler case here under consideration, but that the argument in the text is applicable.

2 Above, p. 184. 3 J. S. Mill, loc. cit.


The war in South Africa appears to furnish a good opportunity for studying some of those questions which arise in connection with such disturbances of the economic equilibrium. It stops far short of being one of those great disturbances which sometimes occur, such as the war between North and South in the United States, thirty-five to forty years ago, or such as the war between France and Germany in 1870, when millions of people were involved on both sides, and there was in consequence great stoppage and diversion of industry, continued in the case of the war between North and South for nearly four years. On the other hand, the war is not one of those little wars which are incident to the existence of the British Empire, being unavoidable on the doctrine of chances with an Empire so widely extended as our own, and on so small a scale with reference to the resources of the Empire generally that they pass almost unnoticed in the economic life of the nation. Without being a war of the first kind, involving a great and obvious disturbance of the whole industry of the people, the present war is still on a large enough scale to produce some visible and palpable effects which are the result of war, and it can by no means be spoken of as war with limited liability.

The war then may be looked at from several points of view in its economic relations. First, and not the least important, the circumstances of South Africa itself have to be considered. The war may not be a first-rate affair economically, as far as the British Empire is concerned, but yet it may be of transcendant importance in that respect for the communities of South Africa who are directly involved. Second, the precise effects, as far as the United Kingdom and the Empire are concerned, have to be studied. What is, in fact, the interruption to trade, and what are the temporary and permanent losses sustained ? In connection with this, what is the tendency of the war on account of political and other changes that may result in relation to the industry of the country? Third, special consideration has to be given to the finance of the war, and the illustrations supplied by it as to the method of raising loans and new taxes in similar emergencies.

Taking these problems in their order, we have to begin by noticing the extent of the disturbance of industry in South Africa itself. The war has perhaps brought about, as far as the local communities are concerned, a more extensive stoppage of industry in proportion to the whole business done than almost any war on record. The chief industry of the Transvaal was that of gold mining. The gross produce of this industry when the war actually broke out amounted to £20,000,000 sterling per annum, many times the gross produce of all the other industries of the country. This big industry sustained a large community in Johannesburg and on the Rand, comprising a white population of about 60,000 and a black population whose numbers I find difficult to estimate, but probably of at least equal magnitude. The industry again, besides supporting all this population, supplied the means for the expenditure of the Transvaal Government itself, besides large dividends for shareholders, not merely in South Africa and in London, but all over the world. All at once, four-fifths, if not five-sixths, of this industry have been put an end to for the time. Half the white community by which it was carried on have been displaced, and obliged to leave as fugitives the country where they were settled, and to subsist, many of them, upon charity in Natal and the Cape Colony. In proportion to the area affected, then, there could not be a greater disturbance. The war has spelt temporary ruin to many thousands of people, including the most advanced and civilised portion of the population of the Transvaal. There has also been some destruction of capital which will have to be renewed after the war, but not representing any large sum in comparison with the annual product of the industry.

This disturbance, perhaps, has not been an inevitable incident of the war. It was quite possible for the Transvaal Government to permit the Uitlander to live and work in peace, although war was going on. As a matter of fact, however, contrary to their own interest, the governing classes of the Transvaal have not permitted the industry to go on, because they have expelled the only people by whom it could in fact be managed. In any case there would have been some disturbance through the fear of the

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