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enterprises should be confined to works of general utility, and have then inferred that it was to the general advantage that the services rendered should be as cheap as possible. But there does not appear to be any ground whatever for the cool assumption that municipal enterprise should be confined to works of general utility. As we have seen, the very thing that makes an undertaking rank as a municipal enterprise is that the service rendered is not of sufficiently general utility to be paid for out of the general rates. The reason for any particular service being rendered by the municipality surely is that it can be best rendered by the municipality, not that it is of general utility. The question of its being or not being of general utility arises only when we have to consider whether it shall be a municipal enterprise or part of the ordinary work of the municipality paid for by the general rates.

I think, then, that we ought to deny unhesitatingly and uncompromisingly the doctrine that municipal enterprise ought not, where possible, to yield a profit in aid of rates.

This leaves us, of course, still to face the question: what limits, if any, are there to the profits which may be made ? Where there is no monopoly there is clearly no reason why the profit should be restricted by anything except competition or the fear of competition. In these days we are always exaggerating the monopolistic character of particular enterprises. We must not forget that the different monopolies compete with each other, and that even if the gas or the electric light supply are in one hand they have to compete with the Standard Oil Trust, and very likely before long they will have to compete with new illuminants. The tramway monopoly is a good deal tempered by the competition not only of the antiquated 'bus, but also by that of the bicycle and the motor-car and the railway : even the telephone has to drive out the messenger. Moreover, the competition need not be within the place, but may be between place and place. Nowhere have the anti-profit doctrinaires, aided by strong private interest, been stronger than in relation to docks and harbours, but in view of the enormous subsidies to docks which have been given by the general ratepayers in Preston, Manchester, and Bristol, the only important places where the docks are in municipal ownership, what can be more absurd than the taking away of the Mersey docks from the Liverpool Corporation for fear the town should batten on the trade of Lancashire and England generally? It will usually be found that a cheap price to the consumer is also the price which brings in the biggest aggregate net profit to the municipality. If we examine the accounts of English corporations we shall find that there is no connection between high prices and large profits.

On the whole, I conclude that all restrictions placed by government departments and Parliament on the profits of municipal enterprise should be removed. It is possible that here and there a local authority may charge more than is economically desirable, but the damage must be much greater to the locality than to the nation at large; so the locality should be allowed to find out its own mistake and take the consequences.

EDWIN CANNAN.

IS THE ENGLISH SYSTEM OF TAXATION FAIR ?

In a recent article in the Yale Review l an estimate was made by the present writer of the amount of the public burdens borne by the working classes and the rest of the nation in the United Kingdom, but no conclusion was drawn as to the fairness or unfairness of the system which led to the results there stated. Those results will now be discussed in relation to the chief theoretical principles which have been suggested for our guidance in the matter.

Some preliminary requisites for any good system of taxation may first be stated. It is clear that any system of taxation which is not productive is a failure. The object of taxes is to raise money. If a tax does not raise money in considerable quantities it is a bad tax—at any rate if we consider it merely as a tax neglecting any moral or economic advantages that may be obtained by it. It is also clear that so far as possible “indifference" should be a property of any system of taxation. That is, people should not be taxed on account of any extraneous quality not connected with their wealth or their manner of acquiring or spending it. It would be absurd to put a poll tax on all persons more than six feet high. In like manner the last three of Adam Smith's famous maxims—that a tax should be certain and not arbitrary, be levied at the most convenient time and be inexpensive to collect—are generally accepted by experts and men of plain sense. of taxation in the United Kingdom does not offend very grossly against any of these rules, so that we are at liberty to approach the main question at once and to consider whether, and judged by what criterion, the system is fair. It would be unreasonable to expect that occasional injustice is not done not only to special individuals, but also to special limited classes, by any system of taxation however excellent, or that any special tax (except perhaps a very cunningly devised income or property tax) should not press with

| February, 1898.

The system

undue harshness upon some class of the community. It is therefore both reasonable and necessary to consider the effect of the public burdens as a whole and to consider their effect upon large classes of the community. In the article above referred to estimates of the incidence of the public burdens upon the two most important classes into which any community may be divided have been given, and these estimates will be used here as a convenient basis for discussion. They are summed up in the following table (the first three lines of figures are in millions of English £ and the fourth line is in millions) :

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In addition to these figures we require estimates of the incomes of the working classes and the rest of the community. Such estimates are very difficult to make, and the figures given by such eminent statisticians as Sir Robert Giffen and Mr. Bowleyare clearly liable to a very large error. The following very rough estimate will be taken here. (The first line is in millions of £):

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In this the average income for the working classes appears rather high, but this is partly due to the fact that the average size of a family is probably rather less than five. It must

1 Mr. Bowley's figures for the year 1891 are (in million £).

Total wages

Total income subject to income-tax..
Income not wages or subject to income-tax

699 782 130

Total national income

1,611

also be remembered that the family income is made up not only of the wages of the father but of the income from all sources combined, and many children earn a few shillings a week.

Three main principles have been suggested as the test of a fair system of taxation. They are: (1) minimum sacrifice, (2) equal sacrifice, (3) proportional sacrifice.

The principle of minimum sacrifice means that the public burdens should be so levied that the total loss of utility to the community measured upon an utilitarian hypothesis should be a minimum. Since it is generally admitted that the more money a man has the less he feels the loss of a definite sum, this principle would lead us to impose all our public burdens upon the richest members of the community, and to relieve all others from taxation. For obvious reasons this attractive plan of making millionaires pay for the whole of the expenses of a nation has never been adopted in practice, and is clearly out of the region of practical consideration.

The principle of equal sacrifice is that stated by Adam Smith in his first maxim. “ The subjects of every state ought to contribute towards the support of the government, as nearly as possible in proportion to their respective abilities; that is in proportion to the revenue which they respectively enjoy under the protection of the state."' 2 It will be noticed that it is the first half of the maxim which states the principle; the second half assumes as a fact that equal sacrifice is secured by making taxation directly proportional to income. But is this assumption true? Suppose A. has an income of £50, B. of £500, C. of £5,000, then is it true that A. feels a loss of £5 just as heavily as B. does a lossøof £50 or C. a loss of £500? It is certain that such a proportion could never be rigidly proved; but is it a reasonable working hypothesis ? It appears to have been first suggested by Daniel Bernoulli in his tract entitled Specimen theoriæ novæ de mensura sortis, which appeared in 1738, and the principle has, subject to a modification noticed below, been adopted by many writers of eminence. Few, if any, theorists have suggested that, in the example above given, C.'s sacrifice in losing £500 is greater than B.'s in losing £50, or that B.'s sacrifice is greater than A.'s when he loses £5; but on the contrary the general opinion would seem to be that in such a case C.'s is the least and A.'s the greatest sacrifice. If Bernoulli's hypothesis is substantially true we have Adam Smith's result, that

On the theory generally, see Prof. Edgeworth on “ The Pure Theory of Taxation," ECONOMIC JOURNAL, vol. vii., p. 550, et s99.

2 Wealth of Nations, Book V., Chapter II., Part II.

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