$10. The preceding principles demonstrate the fallacy of many popular arguments and doctrines which are continually reproducing themselves in new forms. For example, it has been contended, and by some from whom better things. might have been expected, that the argument for the income tax, grounded on its falling on the higher and middle classes only, and sparing the poor, is an error; some have gone so far as to say, an imposture; because, in taking from the rich what they would have expended among the poor, the tax injures the poor as much as if it had been directly levied from them. Of this doctrine we now know what to think. So far, indeed, as what is taken from the rich in taxes, would, if not so taken, have been saved, and converted into capital, or even expended in the maintenance and wages of servants or of any class of unproductive laborers, to that extent the demand for labor is no doubt diminished, and the poor injuriously affected, by any tax on the rich; and as these effects are almost always produced in a greater or less degree, it is impossible so to tax the rich as that no portion whatever of the tax can fall on the poor. But even here the question arises, whether the government, after receiving the amount, will not lay out as great a portion of it in the direct purchase of labor, as the taxpayers would have done. In regard to all that portion of the tax, which, if not paid to the government, would have been consumed in the form of commodities, (or even expended in services if the payment has been advanced by a capitalist,) this, according to the principles we have investigated, falls definitely on the rich, and not at all on the poor. There is exactly the same demand for labor, so far as this portion is concerned, after the tax, as before it. The capital which hitherto employed the laborers of the country, remains, and is still capable of employing the same number. There is the same amount of produce paid in wages, or allotted to defray the feeding and clothing of laborers.

If those against whom I am now contending were in the right, it would be impossible to tax any body except the poor. If it is taxing the laborers, to tax what is laid out in the produce of labor, the laboring classes pay all the taxes. The same argument, however, equally proves, that it is impossible to tax the laborers at all; since the tax, being laid out either in labor or in commodities, comes all back to them; so that taxation has the singular property of falling on nobody. On the same showing, it would do the laborers no harm to take from them all they have, and distribute it among the other members of the community. It would all be "spent among them," which on this theory comes to the same thing. The error is produced by not looking directly at the realities of the phenomena, but attending only to the outward mechanism of paying and spending. If we look at the effects produced not on the money, which merely changes hands, but on the commodities which are used and consumed, we see that, in consequence of the income-tax, the classes who pay it do really diminish their consumption. Exactly so far as they do this, they are the persons on whom the tax falls. It is defrayed out of what they would otherwise have used and enjoyed. So far, on the other hand, as the burden falls, not on what they would have consumed, but on what they would have saved to maintain production, or spent in maintaining or paying unprotective laborers, to that extent the tax forms a deduction from what would have been used and enjoyed by the laboring classes. But if the government, as is probably the fact, expends fully as much of the amount as the tax-payers would have done in the direct employment of labor, as in hiring sailors, soldiers, and policemen, or in paying off debt, by which last operation it even increases capital, the laboring classes not only do not lose any employment by the tax, but may possibly gain some, and the whole of the tax falls exclusively where it was intended.

All that portion of the produce of the country which any one actually and literally consumes for his own use, does not contribute in the smallest degree to the maintenance of labor. No one is benefitted by mere consumption, except the person who consumes. And a person cannot both consume his income himself and make it over to be consumed by others. Taking away a certain portion by taxation cannot deprive both him and them of it, but only him or them. To know which is the sufferer, we must understand whose consumption will have to be retrenched in consequence; this, whoever it be, is the person on whom the tax really falls.

CHAPTER VI.

ON CIRCULATING AND FIXED CAPITAL.

1. To complete our explanations on the subject of capital, it is necessary to say something of the two species into which it is usually divided. The distinction is very obvious, and though not named, has been often adverted to, in the two preceding chapters; but it is now proper to define it accurately, and to point out a few of its consequences.

Of the capital engaged in the production of any commodity, there is a part which, after being once used, exists no longer as capital, is no longer capable of rendering service to production, or at least not the same service, or to the same sort of production. Such, for example, is the portion of capital which consists of materials. The tallow and alkali of which soap is made, once used in the manufacture, are destroyed as alkali and tallow, and cannot be

employed any further in the soap manufacture, although, in their altered condition, as soap, they are capable of being used as a material or an instrument in other branches of manufacture. In the same division must be placed the portion of capital which is paid as the wages, or consumed as the subsistence, of laborers. That part of the capital of a cotton spinner which he pays away to his work-people, once so paid exists no longer as his capital, or as a cotton spinner's capital; such portion of it as the workmen consume, no longer exists as capital at all; even if they save any part, it exists not as the same, but as a fresh capital, the result of a second act of accumulation. Capital which in this manner fulfils the whole of its office in the production in which it is engaged, by a single use, is called Circulating Capital. The term, which is not very appropriate, is derived from the circumstance, that this portion of capital requires to be constantly renewed by the sale of the finished product, and when renewed is perpetually parted with in buying materials and paying wages; so that it does its work not by being kept, but by changing hands.

Another large portion of capital, however, consists in instruments of production, of a more or less permanent character, which produce their effect not by being parted with, but by being kept; and the efficacy of which is not exhausted by a single use. To this belong buildings, machinery, and all or most things known by the name of implements or tools. The durability of some of these is considerable, and their function as productive instruments is prolonged through many repetitions of the productive operation. In this class must likewise be included capital sunk (as the expression is) in permanent improvements of land. So also the capital expended once for all, in the commencement of an undertaking, to prepare the way for subsequent operations; the expense of opening a mine, for example; of cutting canals, of making roads or docks.

Other examples might be added, but these are sufficient. Capital which exists in any of these durable shapes, and the return to which is spread over a period of corresponding duration, is called Fixed Capital.

Of fixed capital, some kinds require to be occasionally or periodically renewed. Such are all implements and buildings; they require, at intervals, partial renewal by means of repairs, and are at last entirely worn out, and cannot be of any further service as building and implements, but fall back into the class of materials. In other cases, the capital does not, unless as a consequence of some unusual accident, require entire renewal; but there is always some outlay needed, either regularly or at least occasionally, to keep it up. A dock or a canal, once made, does not require, like a machine, to be made again, unless purposely destroyed, or unless an earthquake or some similar catastrophe has filled it up; but regular and frequent outlays are necessary to keep it in repair. The cost of opening a mine needs not be incurred a second time; but unless some one goes to the expense of keeping the mine clear of water, it is soon rendered useless. The most permanent of all kinds of fixed capital is that employed in giving increased productiveness to a natural agent, such as land. The draining of marshy or inundated tracts like the Bedford level, the reclaiming of land from the sea, or its protection by embankments, are improvements calculated for perpetuity; but drains and dykes require frequent repairs. The same character of perpetuity belongs to the improvement of land by subsoil draining, which adds so much to the productiveness of the clay soils; or by permanent manures, that is, by the addition to the soil, not of the substances which enter into the composition of vegetables, and which are therefore consumed by vegetation, but of those which merely alter the relation of the soil to air and water; as sand and lime on the heavy soils, clay and marl on the light. Even such